Business | Economy
Financial crisis spurs trade reform calls
WTO chief Pascal Lamy warns turmoil could increase protectionism and hurt economic growth globally.
- Reuters
- Published: 23:56 September 28, 2008
Geneva: The hurricane tearing through financial markets has had a muted impact so far on trade flows.
But with inadequate regulation widely blamed for the biggest financial disaster since the 1929 Wall Street Crash, the debacle is reinforcing calls to strengthen the rules of commerce by agreeing a new trade deal.
"If we can conclude the negotiation we can send a positive signal to the world economy, to business people, because the Doha round is a round of liberalisation of trade and investment," said China's deputy World Trade Organisation (WTO) ambassador, Xiang Zhang.
Conversely, failure to agree a deal now after seven years could lead to a new crisis of confidence in business, said Zhang, who was instrumental in steering China into the WTO.
WTO Director-General Pascal Lamy still hopes to reach an outline deal on agriculture and industrial goods by the end of the year in the WTO's Doha round, launched in 2001, even though ministers failed to secure a breakthrough in July.
Both Lamy and EU trade chief Peter Mandelson warned last week the financial crisis could fan protectionism, which would hurt economic growth, making a new trade deal to secure the benefits of globalisation all the more urgent.
The crisis could also monopolise the attention of countries' leaders, distracting them from trade issues and getting a deal.
Agreement on a proposed $700 billion bailout for the US financial industry would go some way to easing that concern.
Any trade deal, which would not be finalised until well into 2009 or even 2010 at the earliest, would not have an immediate impact on flows because of implementation periods of five years for rich countries and up to 17 years for developing nations.
That delayed economic effect would also argue against any immediate financial market impact, as exchange rates or company earnings would respond only later to changing trade flows.
A deal would boost business confidence, by showing that barriers to business were coming down, that the world trading system was in good shape, and that the international community was able to cooperate to solve global problems, experts said.
In any case, existing WTO deals limit the extent to which countries can raise tariffs, said Fredrik Erixon, head of Brussels trade policy think-tank Ecipe.
"I don't think we are going to see a 1930s repetition where a financial crisis is going to lead to tit-for-tat economic nationalism as it did then," he said.
Slim prospects
The prospects for a new trade deal opening up markets may not seem propitious in a climate where deregulation is blamed for the crisis, and Anglo-Saxon laissez-faire liberalisation has has come under attack from French President Nicolas Sarkozy and German Finance Minister Peer Steinbrueck.
That atmosphere could hurt one aspect of the talks - liberalising trade in financial services, diplomats said. But, at a meeting in July where governments signalled a readiness to open up markets to different services, the credit crunch did not seem to force negotiators to hold back on banking.
In any case, there is a difference between market access, which is what trade negotiations are about, and financial contagion, which is a matter for regulators, said John Cooke, chairman of the Liberalisation of Trade in Services Committee, which promotes UK financial services around the world.
"The fact remains that the world will continue to globalise: with more trade and investment there will be more international dependencies between the real economies of different economies. And, as trade and investment develop, they have to be financed."
More from Economy
More from Business
Business Editor's choice
-
‘Wrong Way' Krugman
The source of our economic malfunction lies with government-mandated bank regulations
-
Greek exit could make Eurozone stronger
Departure will show limits of bailouts and allow remaining members to act much more like a unit
-
UAE upholds values of free trade
Recently released statistics confirm an established fact, namely that of the UAE embracing the free trade principle in general and imports in particular
