Op-ed by ICC Chairman ahead of G20 Summit
Writing in the South China Morning Post, ICC Chairman Victor K. Fung expressed the key concerns of the global business community ahead of the G20 Summit in Pittsburgh on 24-25 September.
ICC has been providing key input to the G20 Summits since 2008, urging the G20 leaders to strengthen the multilateral trading system, resist protectionism and restore trade finance to more normal levels.
The article appeared on Tuesday, 15 September 2009. The text of the op-ed is below.Next week G20 leaders will join together in Pittsburgh to push the global economy further towards recovery. Notwithstanding the enthusiasm in some equity markets and Asia’s positive growth figures in the second quarter, the world remains constrained by the most synchronized global recession on record.
At the core of the economic slump is the dramatic collapse of international trade, projected by the World Trade Organisation to contract by 10% for 2009, its worst decline since World War II.
The lack of trade finance has been a significant obstacle to global trade since the start of the financial crisis, as lenders faced tighter credit conditions and higher reserve requirements. The cost of trade finance also shot up and specific countries perceived to be risky have been targeted, subjecting even strong producers in these countries to much higher costs.
The G20’s decision in April to support US$250 billion worth of trade over a two-year period, together with the follow-on actions of multilateral institutions such as the Asian Development Bank, the International Finance Corporation, the World Bank and the African Development Bank, has proved to be a major step in alleviating the trade finance gap.
According to a new survey by the International Chamber of Commerce’s Banking Commission, availability and demand for trade finance have improved significantly. The survey, conducted in July and August, shows that the severe funding gap and price increases for trade finance that strangled global trade at the end of 2008 and earlier this year, have softened. Both the demand for trade finance and the supply are either stable or increasing in most sectors of the market. We should, however, be careful to note that these are broad trends and that solutions have yet to reach far ends of the market, such as poorer emerging economies and small and medium-sized enterprises, and that some sectors of the industry, are still reporting declines in volume. Thus we must remain vigilant.
We must also continue to keep our eyes on the bigger battle. We may have averted a “trade finance tsunami” but, to really restart global trade, we need a return of demand, open markets and a conclusion of the Doha round of trade negotiations. The Washington-based Peterson Institute has estimated that a successful Doha agreement would provide a stimulus of US$300 to $700 billion to global gross domestic product, much of it from increased trade after tariffs and subsidies are slashed.
The G20 leaders have acknowledged the central role of trade in economic recovery, and have pledged to avoid protectionism and remove obstacles to the conclusion of the Doha round. So far there is little to show for these pledges. Many countries have retreated to familiar protectionist measures during the past few months. These take many guises: anti-surge and anti-dumping mechanisms, emissions-related tariffs, “buy local” incentives and bans on alleged safety grounds. We see examples in some of the current high-profile US-China trade disputes.
While these maneuvers pacify select groups of domestic producers, they create a much greater problem for global industry. History shows that protectionist barriers provide only short-term relief to the politically-connected few, while the victims are spread far and wide down the global supply chain, both inside and outside the country practicing protectionism.
To achieve real progress towards global economic recovery, G20 leaders must make good on pledges to conclude the Doha round. The Pittsburgh meeting is the time for them to deliver.
Participation in the multilateral trading system has proved to be the single most effective engine of economic development, stability and social progress, but only if it is grounded in an open, multilateral and inclusive framework. The sooner we recognize this, the closer we will be to a durable framework that will propel economic growth for generations to come.