SUMMITS – PEAK DISAPPOINTMENTS

Remember the drama of the G20, the group of the Top 20 industrialised nations, and their summit in Washington, D.C. to address the needs of concerted global action to address the global economic crisis? Presidents and Prime Ministers triumphantly agreed not to introduce any new protectionist measures, and to give added impetus to conclude the Doha Development round. Mindful of how the Great Depression of the 1920’s and ‘30’s was prolonged and made deeper by restrictive, unilateral trade restriction, and that trade fell by 70% in a few years, leaders left this important meeting basking in the glory of dynamic corrective action. Once home, the opposite of what was said happened. China re-introduced tax breaks for exporters; India imposed caps on imports of steel; duties on car imports into Russia have been raised. Billion-dollar bailouts to car manufacturers in the U.S. were announced; France promised to protect companies from foreign predators with over US$7 billion. From Indonesia to Ecuador and Argentine, countries have introduced protectionist policies.

Trade specialists and historians write that things can’t spin out of control like the 1930’s, with trade restrictions and competitive devaluation, now we have the binding rules of the World Trade Organisation, true, but not totally. Most country tariffs are locked into agreements, but there’s a big difference in many countries between what is in the agreements and what the tariffs actually are. That is the bound tariff levels and what they are in practice. If all countries took their tariffs up to what is legally possible, under the WTO, there would be savage trade falls. The WTO is the only organisation that has a legally binding disputes system that nations to honour, but what if the system gets overwhelmed with disputes that could drag on for years? Congratulations to the WTO which recently decided to create a system to monitor and publicise protectionist measures. All this is a means we need to create momentum, take charge, build confidence, and conclude the Doha Development round which was launched years ago when I was Director-General of the WTO. To stand still, trapped like a possum in the headlights, is extremely risky and makes the system vulnerable.

I’ve always been a dangerous, even reckless, optimist, but the figures, facts, and reality shows the present situation is precarious. the World Bank suggests trade growth will be the lowest since World War II. Korean exports are down by 30% (January, compared to a year ago); Taiwan 42%; and Japan 27%. Cargo leaving Long Beach, Los Angeles fell by 18% in a year. China’s exports are falling dangerously, their growth may be cut by a third, creating severe social distress. Friends report the air in Hong Kong and Beijing is cleaner than at the time of the Olympics, such is the industrial contraction.

Oil price forecasts are a useful guide to future growth and industrial growth. The Baltic Dry Index, that measures freight ratios of bulk commodities like grain and iron ore, have crashed by 97%. Lloyds report that there are miles of ships anchored off Singapore and elsewhere, and that shipping companies have offered to waive fees on containers in some places, just charging broker costs to move half-full ships and maintain some cash flow. That can’t work for long. How can headlines of shipping rates hitting zero for the first time since records began, of the Bank of England having the lowest interest rates since records have been kept 400 years ago, not wake up those in serious positions of power?

Here’s something you don’t hear everyday from a politician, even an ex-politician – "We don’t know what will work, how long this crisis will continue. We do know what won’t work, because it’s been tried. We do know that protectionism will make things worse. We know that global trade has increased quicker than domestic trade and growth. We do know we are all in this together, that no nation can succeed on its own. Our success is based on other’s success, and that is a healthy thing."

Historians should write of the great follies of this decade, being the unregulated, insane un-transparent lending and leverage practices of global financial companies. The reluctance of politicians to take a few local hits, for their wider benefit, by concluding the Doha Trade Round. The slow acceptance of the importance of China, India, Brazil and Russia at the top table of decision-makers. And, the historic stupidity of not negotiating Russia into the WTO and having firm, predictable, binding rules for the export of energy inherent in such a deal. There’s a whiff of an economic Munich in the air, I expect to see politicians with umbrellas and moustaches, muttering, "Peace in our time," yet again when leaders assemble at the G20 and APEC meetings, knowing full well that, for a decade, their summit communiqués are well-meaning, but meaningless, because they are never implemented.