The Group of Twenty, or G-20, comprises the finance ministers and central bank governors of 19 countries and of the European Union, who have met annually since 1999 to promote dialogue between industrialized and emerging-market countries. The G-20 summits of the Heads of State began in 2008 in response to the financial crisis. The focus of G-20 discussions on trade issues is how members can best structure policy to contribute to restoring global economic health and financial stability. At this year's summit in Los Cabos, Mexico, the leaders again committed to avoid protectionism and to pursue continued negotiations at the World Trade Organization.
On ProtectionismAlways a threat, the risk of protectionism increases during periods of economic and financial crisis, such as the one into which the world has been thrown since 2008.
Protectionist measures are actions taken by a government to artificially increase the competitiveness of its products. Tariffs or import duties are the most obvious and used method. For example, to aid the ailing U.S. car industry, one tool available to the U.S. Government would have been to place a duty on all cars being imported into the U.S. market. A sufficiently high duty would have made imported cars so expensive that it would have deterred all but the wealthiest of Americans from buying them. Presumably, then, U.S. consumers would have increasingly turned to American-made cars simply because they would have been cheaper than any imported cars. However, taking this course of action would have placed the United States in violation of its mandatory commitments as a WTO member and of its voluntary commitments made at previous G-20 summits.
Economists agree that it was the use of tariffs and other such trade protectionist measures that worsened and prolonged the Great Depression of the 1930s. In our globalized economy, any efforts taken by one country to protect its companies at the expense of others threatens to further curtail economic growth.
Mindful of this history, governments have been remarkably consistent in avoiding the use of protectionist tools.
As the crisis continues, spreads, and deepens, however, monitors are reporting the increased use of tariffs and other less transparent measures:
► Global Trade Alert, a monitoring service based in Europe, has reported that trade protectionism is “alive and well”.
► At the request of the G-20, the WTO has also begun issuing a Trade Monitoring Report.
The two organizations have recently reported the increased use of protectionism through tariffs, antidumping actions, and new regulations. Antidumping actions allege that a foreign company is dumping, i.e., importing products at less than the cost of production, causing harm to domestic manufacturers of similar or like products. This practice has been outlawed by the WTO, which provides a remedy through the imposition of additional (antidumping duties) on the imported product. Dumping allegations are frequently used as a means of protecting domestic producers.
An example of regulation which can serve a protectionist purpose is licensing requirements imposed on imports only. Under the guise of health concerns, importers may be asked to take costly and time-consuming steps which either deter entry of the product or add to its final cost. Anywhere between 4% and 10% of world trade is now being affected by such protectionist measures, the two organizations have recently reported.
As a result, the G-20 Declaration included, in paragraph 28, a provision that the governments would not only avoid placing new restrictions on open trade but also roll back any of the measures they have already taken.
It remains to be seen whether they will honor this commitment.
On WTO Trade NegotiationsThe G-20 leaders also reaffirmed their commitment to concluding the WTO Doha trade negotiations.
As described in prior IntLawGrrls posts, these negotiations were initiated in 2001 to continue reforms to the rules governing the trading system and lowering of trade barriers. Negotiations have been stalled for several years. The G-20 declaration reaffirmed the leaders’ commitment to revive the negotiations through new approaches around the stalemate and to move forward on areas of consensus.
One area around which consensus has emerged is with respect to decisions to improve the ability of the world’s least-developed countries to participate in the global economy, notably:
► Duty-Free, Quota-Free entry for all products from least-developed countries; and
► Removal by developed countries of all trade-distorting subsidies and policies for cotton exporters.
Implementation of these and other decisions beneficial to least-developed countries have, however, been held hostage to the principle of the single undertaking – that is, the principle that nothing is agreed until everything is agreed – which has governed the previous WTO negotiating rounds.
UNCTAD, reports that these countries' share of world trade has declined by more than 40%, to a mere 0.4%. (p. 50) No trade-related actions these countries take, or don’t take, make them a threat to any country’s economic well-being – least of all to the G-20 countries, which represent about 80% of world trade.
In this area, as well, it remains to be seen whether the G-20 leaders can marshal the will to agree on trade rules to improve the plight of the poorest of the world’s poor.