Rethinking Bretton Woods | Thu, Nov 11, 2010
Two reports were released before the G20 Summit: one by the WTO on G20 trade developments, and another jointly prepared by the OECD and UNCTAD on G20 investment developments. Both reports covered the period from May through October of 2010.
The WTO report on trade highlights that the number of trade restricting measures being undertaken by members appears to be on a declining trend. A calculation of the WTO Secretariat is that in this period, adding up new import restrictive measures and new initiations of investigations into the imposition of trade remedy measures by G20 countries, they amount to around 0.2 per cent of total world imports, and 0.3 per cent of total G20 imports. The percentage of trade-facilitating measures has actually increased, compared to previous reports. However, the report notes that these are new trade restrictions in the period. The accumulated effect of trade restrictions imposed since 2008 amounts now to 1.8 per cent of G20 imports and 1.4 per cent of total world imports.
In assessing trade in financial services, the WTO finds that the reliance of financial institutions on state support is gradually declining. This is not surprising given the expiration, last October, of authority for the US Treasury under the Troubled Asset Relief Programme. But it is probably more surprising that the figures from EU countries also show, in spite of the ongoing financial turmoil in the Eurozone, declining support for financial institutions. What may account for this counterintuitive finding is that the report, focused on state support, does not seem to cover European Central Bank interventions.
Regarding trade finance, the report states there is an improving trend, but characterized by high volatility. More importantly, this trend is an average that hides large differences. On the one hand, for North America, Europe and parts of Asia spreads have come back down to almost pre-crisis levels. On the other hand, traders in low-income countries and small and medium-sized enterprises in developed ones that rely on small or medium-sized banks continue to face significant difficulties to access trade finance at affordable prices. The “lower end” of trade finance, says the report, relies increasingly on risk mitigation instruments of development banks. In particular, African firms have very limited access, on which the African Development Bank is taking action, including through consideration of a potential in-house facility to provide such services.
In its comments on trends, the report notes a strong rebound of trade, where the WTO projects a 13.5 per cent growth in 2010 (volume terms). Two aspects are worth mention here. The growth of trade has slowed recently. In fact, world trade volume was down 0.8 per cent in July after an increase of 0.8 per cent in the previous month. The report attributes this to less imports by developed economies as they decelerate. The other is that the faster export growth has been in developing economies and supported by increases in South-South trade.
The OECD – UNCTAD report on investment classifies measures taken by G20 countries in investment-specific measures, investment measures relating to national security, emergency and related measures with potential impacts on international investment and international investment agreements. No member was found to have taken measures relating to national security and the category that accounts for most measures in the period are the emergency measures with potential impacts on international investment.
In dealing with these latter, the report highlights that they pose serious threats to market competition in general and to competition operating through international investment in particular. Additionally, the report focuses on G20 members that continue to hold assets and liabilities left as a legacy of emergency measures.
It takes a rather negative view of this legacy, stating that it still influences market conditions even after the closure to new entry of some of the programmes that gave rise to them. It calls for emergency programmes to be wound down “as quickly as is prudent, given remaining systemic concerns and the continued fragility of the economic recovery.”
The report finds that several governments are unwinding their legacy assets and liabilities, in the form of sales by governments of their stakes in companies (United Kingdom and United States) or paying down of loans or relinquishing state guarantees by companies participating in the programmes (France, Germany, and the United States). In this regard, the report says “The disposal of assets acquired as part of governments’ emergency response to the crisis may again influence international capital flows and, depending on the approach chosen for disposal, may entail risks of discrimination against foreign investors.”
One remark near the end is noticeably curious. The report expresses worry that, because of global imbalances, “countries have begun adopting policies (capital controls and financial regulations with similar effects) aimed at buffering their economies from volatility of foreign exchange markets and capital flows induced by these imbalances.” It asserts that such policies “if they become entrenched, lead to fragmentation of international capital markets along national lines and may be difficult to dismantle once in place.” The remark can be understood in a paper that has to mechanically report on obstacles to capital flows. But, coming on the heels of the widespread awakening by policy-makers and international institutions such as the International Monetary Fund, of the need for and virtues of capital controls, the seemingly unqualified presumption that these measures have to be eventually dismantled appears remarkably out of sync with current thinking.
Click here for the WTO Report on G20 Trade Measures
Click here for joint OECD –UNCTAD Report on G20 Investment Measures