The First M Visvesvaraya Memorial Lecture Peace & Stability Through World Trade

Dr. Narendra Jadhav
Planning Commission Government of India

Chairman Shri Kamal Morarka,
Distinguished Guests, Ladies and Gentlemen,

I feel greatly honoured to have been invited to deliver the First Sir M. Visvesvaraya Memorial Lecture today. I am grateful to the organisers, particularly to Shri Vijay Kalantri and to Shri Jayant Ghate for giving this opportunity to pay my humble tribute to a great son of India – Bharat Ratna Sir M. Visvesvaraya.

Sir M. Visvesvaraya was a legendary engineer who constructed the Krishnaraja Sagara dam across the Cauvery River in Mysore, which was the biggest reservoir in Asia at that time. He designed a flood protection system for the city of Hyderabad and another system to protect Vishakhapatnam from sea erosion. In Maharashtra, Sir M. Visvesvaraya was instrumental in designing a system of automatic weir water floodgates installed in Khadakvasala reservoir near Pune in 1903. Sir M. Visvesvaraya’s engineering genius earned him such a great reputation that his birthday i.e., September, 15 is celebrated as the Engineer’s Day in our country.

Sir Visvesvaraya was not only a technology genius. He was also a great visionary and statesman who played a key role in building modern India. After opting for voluntary retirement in 1908 (when he was 48), Sir Visvesvaraya was appointed as Diwan of the princely state of Mysore whereupon, among other things he introduced compulsory education in that State, and was instrumental in establishing Mysore University, the Kannada Literary Academy, several Public Libraries in Mysore and Bangalore, besides initiating the establishment of Mysore Chamber of Commerce and Sate Bank of Mysore.

Given the pioneering contributing to overall development by Sir M. Visvesvaraya, not surprisingly, a wide range of institutions in our country have been named after him. In fact, this Centre has also been established (in 1970) as M. Visvesvaraya Industrial Research and Development Centre (MVIRDC). On September 15 – the day before yesterday, was the 149th Birth Anniversary of Sir M. Visvesvaraya. I congratulate Shri Vijay Kalantri and his MVIRDC Team for having instituted the M. Visvesvaraya Memorial Lecture series at this Centre to mark the beginning of 150th Birth Anniversary celebrations of this great son of India.

For this ‘First M. Visvesvaraya Memorial Lecture 2009’, the organisers have requested me to speak on the topic: “Ushering Peace and Stability Through World Trade”. Given this title, I must confess that it is very tempting to offer purely or primarily an academic treatment to the subject – perhaps with a political science perspective. However, knowing fully well that this August gathering comprises mainly practitioners, I am going to resist that temptation.

Ladies and Gentlemen,

I would like to present my thoughts on the theme as follows: First, I propose to explain how, in principle, world trade can possibly contribute towards global peace and stability. Secondly, I propose to present an overview of the evolution of the global economy through the last 60 years. This overview is focussed on the threats to stability of the international financial and trading system that have arisen time and again right up to the global economic crisis currently underway. Finally then, I propose to analyse how the global regulatory structure for the international trade has been evolving through the successive rounds of discussions under the auspices of the World Trade Organisation (WTO) and discuss the contemporary challenges involved in promoting world trade, while ensuring peace and stability.

World Peace through World Trade

Thomas J. Watson, Head of IBM once wrote: “Think of a still green high school graduate from Jersey City, me, arriving on the first day as a mail clerk in 1938 at…..IBM Headquarters (New York). There I…… got a lesson not just on free trade’s raising productivity in participating countries not its power to thereby lift living standards, including those of the poor, but on its power to wage peace…… For on an outside wall at the entrance was a huge 40 feet high vertical sign, painted in black and gold, reading WORLD PEACE THROUGH WORLD TRADE.”

Quoting this story, William Peterson – An Adjunct Scholar at the Ludwig von Mises Institute, observes that this “fact may save our neck in a race against time, a race for free trade” (William Peterson Archives, 2006).

The case for ‘World peace through world trade’ has been eloquently made by Peterson. According to him, “(Thomas Watson) had apparently worried about the dubious outcome of World War I, the League of Nations, and the vicious rise of Adolf Hitler in Nazi Germany and of Joseph Stalin in the Soviet Union. Yet he also saw how voluntary peaceful trade lifts living standards and so directly benefits people. So he prodded the world to see the folly of war as armed forces unknowingly shoot or bomb customers and investors, actual or potential – so denying the peace underlying what Ludwig Mises called “social co-operation”.

According to Peterson, Watson’s case for world trade spurring world peace makes sense: “Think of rising interdependency as trading nations rely more and more on each other for selling or buying or both. Or think of the spontaneity or social co-operation involved – friendly relations amid rising international commerce. Or think how international division of labor leads to greater economic growth – to more profits and higher wages. Or think how lessening or eliminating trade protectionism cuts back corruption and special interests in the halls of government – corruption that often conflicts with peaceful relations among nations.”

This line of thinking as to how world peace is promoted through world trade is certainly quite appealing. Yet, how do we explain the simultaneous occurrence of expansion of the world trade along with proliferation of wars in different parts of the world- Afghanistan, Iraq and elsewhere? Surely, the warring countries do not trade with each other. ‘Not trading’ with each other can hardly be the cause for a war; rather it may be an effect. Yet it is possible to argue that if they were trading with each other in a mutually rewarding manner, the need for war would perhaps not have arisen unless there was an altogether different, unrelated but compelling reason.

Bearing this principle premise in mind, let me turn to the evolution of the global economy under the major threats to stability to the international financial and trading system.

Global Economy: Turbulence and Stability

Over the years, global economy has come a long way, passing through ups and downs and witnessing phases of turbulence and stability in turns.

Towards the end of the World War II, a series of efforts were made by world leaders collectively. A landmark development in this regard was the Bretton Woods Conference held in 1944 with a view to negotiate the institutional set-up for the post-World War II world economic order. Three main decisions emerged in that historic Conference:

All national currencies were to be tied to the US dollar which in turn, was pegged to gold (at US $ 35 an ounce);
Capital controls introduced during the wartime were to remain in place; and International institutions such as the International Monetary Fund (IMF) and the World Bank were to be founded.

Subsequently, a multilateral trade accord was established in 1948 in the form of the General Agreement on Tariffs and Trade (GATT).

Countries that joined the IMF had agreed to keep their exchange rates pegged to the US dollar and in the case of United States, the value of the dollar was fixed in terms of gold. The peg could be adjusted but only to correct a ‘fundamental disequilibrium’ in the balance of payments and that too with the concurrence of the IMF (the Articles of Agreement). The system worked well as long as the US had enough gold to back its currency. With the then large current account surplus, the US had both ability and willingness to continue this gold/dollar standard to command international acceptability. However, the situation soon reversed as the US started incurring deficits on its current account of balance of payments, especially with the pick-up of the economic activity in war-torn countries such as Germany and Japan. This led to a dollar glut, which strengthened the role of dollar as an international currency but only at the cost of loosened grip of the Federal Reserve on money supply and consequently on inflation. Importantly, the potential dollar claims against the US gold supply became several times larger than what could be honoured by the United States. Recognizing this precarious situation, the US severed the link between the dollar and gold on August 15, 1971. The US Government unilaterally suspended the convertibility of the US dollar (and the dollar reserves held by other countries) into gold. Gold became just another commodity whose price was left to the market forces of demand and supply. Since then the IMF members have been free to choose any form of exchange arrangement except pegging their currency to gold. Subsequently, the U.K. government decided to allow the Sterling to float in June 1972. In early 1973, the Swiss Franc and then the Japanese Yen were also allowed to float against the US dollar. The international financial system was now left to the vicissitudes of the market forces of demand and supply. With this, the gold standard became history and by 1973, the dollar firmly assumed the role of the world’s key international currency.

The decade of 1970s was marked by a sharp rise in syndicated bank lending especially to Latin American countries. Then came the first oil shock-sharp increase in the price of oil by OPEC that occurred in the 1973. (The price of oil shot up from US $ 1.30 per barrel in 1970 to US $ 10.7 per barrel by 1975). This had serious implications for the US economy as also for developing economies. With the US importing half of its oil from the OPEC, an inflationary shock struck the US economy coupled with a massive transfer of wealth to OPEC nations in the form of US dollars. On the other hand, oil-importing developing countries like India, suffering a deteriorating balance of payments situation, required funds for financing their oil and other crucial imports. Since funds from the IMF for such purposes were available on a limited scale and that too on some restrictive conditions, rescue came from the recycling of the US dollar reserves. Flushed with US dollars, given their limited absorptive capacity, OPEC nations started parking their US dollar reserves with European and American banks, who in turn, given the then prevailing general recessionary trend, used such US dollars to provide loans to developing countries. The spurt in these petrodollar funds, consequently, increased developing countries’ debts significantly.

The second round of OPEC oil price increase in 1979 exacerbated the situation and made high levels of debt unsustainable for several developing countries. The US economy suffered a three-year period of stagflation (1979-81) along with worsening of trade and current accounts. The requirements of developing countries for funds received another demand impetus, and the American banks were more than ready to provide loans. Loans to developing countries – mainly those in Latin America, were made at variable interest rates. Funds raised were utilized by these countries mainly to pay for oil imports, for development of import substitution industries and towards financing large infrastructure projects. However, restrictive monetary policies that were warranted for containing the domestic inflationary impact of the rise in oil prices, pushed up the cost of new borrowings. Global demand also slowed down as a result of which investment projects undertaken turned out to be unsustainable. The build up of developing countries’ debt coupled with increasing liabilities of debt servicing on account of rising interest rates led to a debt crisis that surfaced in Mexico in 1982. Since most of the advanced economies were themselves suffering from stagnation, the debt crisis deepened and widened, engulfing Argentina, Brazil, Chile, Venezuela, Peru, Philippines, Turkey, Poland, Romania, and many other countries.

Almost all the debt crisis affected countries of Latin America went in for IMF’s Stabilization Programs and World Bank’s Structural Adjustment Program (SAP). In view of the fact that the then available financing mechanisms were inadequate and that some of the low income countries needed highly concessional financial support on a longer term basis, the IMF set up the Structural Adjustment Program (SAP) in March 1986 besides its regular funding Schemes (which was subsequently renamed as Enhanced Structural Adjustment Program (ESAP) in December 1987), with the objective of providing assistance on concessional terms to low income member countries facing a persistent balance of payment problem.

Given the formidable magnitude of the debt (approximately US $ 300 billion), the funding from the IMF and the World Bank was insufficient to resolve the debt crisis and the need was felt for restructuring the debt by involving the private sector. A plan, known as Brady Plan (formulated by Nicholas Brady, the then Secretary, US Treasury), evolved in 1989, came to the rescue. The Plan involved a permanent reduction in principal and the outstanding debt servicing obligations. Substantial funds were raised from the IMF, the World Bank and other sources by debtor nations to facilitate such a debt reduction by issuing instruments such as debt-equity swaps, by-backs and exit bonds.

Global Economic Growth

Recovering from the two oil stocks in the 1970s and Latin American Debt Crisis of the 1980s, the world economy was subject to a series of regional crises in the decade of 1990s including the exchange rate mechanism (ERM) Crisis in the European Monetary System (1992-93), Mexican Crisis (1994), East Asian Crisis (1997-98), Russian Crisis (1998), Brazilian Crisis (1998-99) and with the turn of the Century, Argentine and Turkish Crises in 2001. Notwithstanding these Crises, the world economy recorded a monotonic growth throughout the 1990s except for a dip during the East Asian Crisis and recorded on average real GDP growth of 3.1 per cent during the period 1991-2000.

When the new world economic order was established towards the end of the World War II, three countries (or groups) were deemed to be the engines of growth for the world economy, i.e., U.S. Western Europe and Japan. When one (or even two) of them faltered, it was expected that remaining engine(s) of growth would take on the mantle of maintaining the momentum for the world economy. This actually happened almost unabatedly up to the year 2000, when a striking new phenomenon became evident i.e., emergence of what is now referred to as Emerging Market Economies (EMEs).

As a matter of fact, throughout the 1990s Emerging and Developing Economies consistently outperformed Advanced Economies. According to the World Economic Outlook (2009) published by the IMF, the average annual real GDP growth rate during the period 1991-2000 placed at 2.8 per cent for Advanced Economies was distinctly lower than the corresponding growth rate of 3.6 per cent posted by Emerging and Developing Economies. A subset of the latter group of countries referred to as Developing Asia in fact registered an impressive average annual real GDP growth rate of 7.4 per cent during the same period.

With the turn of the century, Advanced Economies as a group distinctly slowed down. From the decadal average growth rate of 2.8 per cent during the 1990s, their real GDP growth rate in 2001 decelerated to only 1.2 per cent. The deceleration was especially pronounced in respect of the main engine of global GDP growth i.e., the USA, whose growth rate decelerated from the average of 3.3 per cent during the 1990s to only 0.8 per cent in 2001. The other two traditional engines of global GDP growth i.e., Western Europe and Japan who had not done well in the 1990s, slowed down further. The Euro Area’s growth rate in 2001 was under 2 per cent whereas Japan’s Growth rate which was only 1.3 per cent during the 1990s decelerated further to barely 0.2 per cent. In contrast, while the Advanced Economies were slowing down in 2001, the Emerging and Developing Economies as a group, started gaining further momentum to economic growth, accelerating their growth rate from 3.6 per cent during the 1990s to 3.8 per cent in 2001.

During the first seven years of the current decade (i.e., between 2001-2007), the differential in growth performance between major Advanced Economies and Emerging and Developing Economies became even sharper. Illustratively, the average real GDP growth of Advanced Economies at 2.3 per cent was much lower than that of Emerging and Developing Economies placed at 6.5 per cent and was in fact significantly lower than that of Developing Asia which posted a growth rate of 8.4 per cent during the same period.

The difference in growth performance becomes strikingly evident when individual country comparisons are made between the two groups. During the period 2001-07, the average real GDP growth was 2.3 per cent for the USA, 1.9 per cent for the Euro Area and only 1.5 per cent for Japan. In contrast, during the same period, the average real GDP growth was 10.4 per cent in China, 7.3 per cent in India, and 5.1 per cent in Malaysia and Thailand. Elsewhere within Emerging and Developing Economies Group, in Africa, Nigeria and South Africa posted a notable performance – recording 7.1 per cent and 5.1 per cent growth respectively during the four-year period (2004-07). Likewise, in Latin America, Brazil and Mexico showed a good performance – registering real GDP growth in the range of four to five per cent during the four-year period ending 2007.

Clearly, thus, within the developing country group, a small set of countries have put up an impressive performance over almost two decades and made themselves systemically important for the global economy as a whole. These countries, now being loosely referred to as Emerging Market Economies (EMEs) include, among others, China, India, Brazil, Mexico and South Africa.

The systematic importance of EMEs in terms of driving and sustaining global growth process needs to be understood clearly. According to one estimate by the IMF (World Economic Outlook Database 2004), in 2003 the contribution to global GDP growth (valued in terms of purchasing power parity – PPP principle) of the three traditional engines of growth i.e., the USA (18.6 per cent), Euro Area (7.1 per cent) and Japan (5.3 per cent) in the aggregate was in fact lower than that of China (23.5) and India (8.6) combined. In other words, the balance of sustaining the global growth momentum has shifted from Advanced Economies like the USA, Western Europe and Japan to Emerging Market Economies (EMEs), particularly to China and India.

Today the world economy is the middle of arguably the worst economic crisis since the Great Depression of the 1930s. The sub prime crisis that occurred in August 2007 in the USA has subsequently turned into a full blown global recession with the dramatic escalation of the global financial crisis in 2008. The ongoing global crisis is undoubtedly one of the severest shocks not only for Advanced Economies but also for all Emerging Market Economies (EMEs). Its impact has been transmitted from the financial sectors to real economic activity in Advanced Economies and then on to Emerging Market Economies (EMEs) through the financial and trade channels.

Earlier hopes that this is essentially a financial crisis and therefore it would only have a limited impact on the ‘real’ economy have been squashed. As a matter of fact, world economic growth in 2009 is expected to contract for the first time since World War II.

Advanced Economies are expected to face the most severe downturn. According to the World Economic Outlook (IMF, 2009), real GDP growth of Advanced Economies which had weakened to only 0.9 per cent in 2008, is expected to decelerate further into the negative growth territory i.e., (-4.0) per cent growth in 2009, whereas the USA where the crisis originated, is expected to witness (-2.5) per cent growth, the Euro Area to (-4.2) per cent growth and Japan whose recovery has been rather weak, is expected to face output contraction of as much as 6.2 per cent in 2009.

While all the traditional engines of growth are in deep recession this year, the EMEs have also been severely hit. Yet, in most EMEs, there is a slowdown in growth from 13 per cent in 2007, to 9.0 per cent in 2008 and further to around 6.5 per cent in 2009. In our own case, from around 9 per cent growth rate in 2007-08, there was a distinct slowdown to 6.7 per cent in 2008-09 and on current indications, expectation of a further slowdown to 6.3 per cent in 2009-19. Most EMEs, especially China and India not sinking into recession is clearly symptomatic of remarkable resilience that they have achieved over years.

Global Trade Integration:

The world exports of goods and services which averaged US $ Billion 6,108 during the 1990s (i.e., 1991-2000) rose steady (in value terms) reaching US $ Billion 19,694 by the year 2008. It may be noted that underlying variation in the volume of exports during the period was generally less pronounced that the dollar value of exports indicating that international price volatility has been a dominant factor in the steady expansion of global trade. (Illustratively, the oil price which averaged $ 18.73 per barrel during 1990s rose steadily to $ 28.9 per barrel in 2003 and shot up thereafter, reaching US $ 97 per barrel on average by the year 2008).

Going by the data available in the World Economic Outlook 2009 published by the IMF, the volume of world exports of goods and services seems to have closely mirrored the ups and downs in the growth rate of the global economy. The volume of world exports in goods and services recorded a strong growth of 7.1 per cent during the 1990s, but with the deceleration in the overall global growth rate in 2001, the exports also declines sharply to only 0.3 per cent. The export volume picked up thereafter recording a growth rate of 6.3 per cent on average for the period 2001-07. In other words, the slowdown in the global growth rate from the 1990s to the period 2001-07, was also reflected in decelerating volume of world exports.

For Advanced Economies as a group, the volume of exports of goods and services which was placed at 6.9 per cent in the 1990s, sharply decelerated posting a negative growth (-0.4) per cent in 2001 with the slowdown of their economic growth, but gathered some momentum thereafter, recording an average growth of 5.0 per cent during the first seven years of the current decade. On the other hand, as far as the Emerging and Developing Economies are concerned, with the significant growth acceleration between the 1990s and the period 2001-07, the volume of exports of goods and services also rose in step, accelerating from 8.4 per cent to 9.3 per cent over the period.

Interestingly, openness of the world economy as measured by exports – GDP ratio shows a distinct upward trend, especially for the Low and Middle Income countries. According to the World Bank data (World Development Indictor Online Database), the export-GDP ratio for the world rose from 19.1 per cent in the first half of the 1980s to around 22.9 per cent during the second half of the 1990s. During this period spanning two decades the openness of High Income countries increased only marginally from 19.7 per cent to 22.2 per cent. In contrast, the openness of the Low and Middle Income countries increased significantly from 16.3 per cent to 25.8 per cent during the same period.

A major reason for the increase in global openness to trade has been the unilateral trade liberalisation measures adopted by a large number of developing countries over the two decades. Several of the developing countries have replaced their earlier inward-looking import-substitution strategies by more outward-looking development strategies. They have substantially reduced their tariff as well as non-tariff barriers to international trade during this period.

The surge in world trade has substantially improved the level of competitiveness across the world. Integration with the world economy for countries which were largely inward-looking earlier, has also meant substantial productivity improvements. Given the fact that exports now account for around one-fourth of the global GDP, it is clear that developments in world trade has emerged as a major determinant of GDP growth as well as employment.

With the advent of the global economic crisis, the global world trade decelerated from a growth of 7.2 percent in 2007 to 2.9 per cent in 2009 and as per the WEO projections, it is expected to decline by 12.2 per cent in 2009. These estimates have been corroborated by the World Trade Organisation (WTO). According to their estimates, the volume of world exports could contract in 2009 by 10 per cent – which would be the largest contraction witnessed since the World War II.

The International Labour Organisation (ILO) in their report titled “Global Employment Trends” (2009) has estimated that (in terms of the worst case scenario) the number of unemployed could rise by as much as 50 million in 2009. Clearly thus, the ongoing world economic crisis is perhaps the worst ever threat since the World War II to the global peace and stability.

Role of WTO and Contemporary Challenges:

At the multilateral level, establishment of the World Trade Organisation (WTO) in 1995 as the apex organisation for international trade in place of the General Agreement on Tariffs and Trade (GATT) has been a landmark development. The scope of operation of the WTO is much larger than that of the GATT. While the GATT had focussed mostly on trade in industrial products, the WTO’s role extends, inter alia, to trade in agriculture, services, textiles and clothing, intellectual property rights, and trade-related investment measures. Moreover, WTO provides much more effective access to developing countries to trade-related policy making as well as dispute settlement that its predecessor.

Following the First Ministerial Conference in Singapore in 1996 and the Second one in Geneva in 1998, the Third Ministerial Conference of the WTO held at Seattle during November 30-December 3, 1999 was expected to launch a new round of negotiations with a view to broaden as well as deepen the scope of WTO rules and disciplines. However, the Seattle Conference could not arrive at a consensus regarding the topics for possible negotiations or to determine the parameters for conducting negotiations in some critical areas such as agriculture. The Conference also could not arrive at any decision in regard to the implementation issues and concerns raised by a number of developing countries. The Conference witnessed sharp difference among WTO members regarding the introduction of issues such as core labour standards and environmental standards.

The Fourth Ministerial Conference of the WTO which took place during November 9-14, 2001 at Doha, Qatar represents a major landmark in the progress towards equitable and multilateral rules for international trade. The Doha Ministerial Declaration explicitly recognized that for effective functioning of the WTO it is crucial to safeguard the interests of the developing and least-developed countries. In particular, the Declaration recognized the crucial role of the special and differential treatment extended to developing and least-developed countries within the WTO framework. Agreement was reached to strengthen such provisions for more precise, effective and operational implementation. While upholding the right of the members to take measures to protect environment, it was emphasized that such measures should be within the scope of the existing norms of the WTO. Similarly, the Declaration took note of the work in progress the International Labour Organisation (ILO) for implementation of the core labour norms. Due cognizance was taken of concerns of developing countries on the implementation issues. The declaration called for removal of protectionism in trade in agricultural products and at the same time, recognized the non-trade concerns of the developing countries relating to agriculture. The Declaration on TRIPs mirrored the concerns raised by the developing countries in the context of government action for maintenance of public health, extension of the scope of norms on geographical indicators and protection of traditional knowledge.

The Fifth Ministerial Conference of the WTO was held in Cancun, Mexico, September 10-14, 2003 to take stock of progress in the Doha Development Agenda (DDA) and to provide any necessary political guidance and to take decisions as necessary. It was expected that the Ministerial would examine the progress in other areas of Doha Work Program including implementation issues and review the operation and functioning of the multilateral trading system. The Ministerial Conference in Cancun, however, failed to reach consensus on some of the outstanding issues including reduction of agricultural subsidies and “Singapore issues”. (Singapore issues relate to (i) Trade and Investment; (ii) Trade and Competition Policy; (iii) Transparency in Government Procurement; and (iv) Trade Facilitation). The first draft of the Ministerial Declaration failed to satisfy any of the major groups/ countries while the second draft, especially its section on agriculture, failed to address the concerns of developing countries. There was a clear divergence in views on both issues mainly lead by a new block of developing countries-G22, (Argentina, Bolivia, Brazil, Chile, China, Columbia, Costa Rica, Cuba, Ecuador, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, Philippines, South Africa, Thailand and Venezuela) on the one hand, and developed country group mainly consisting of EU, US and Japan on the other. No consensus could be reached on the phasing out of subsidies on agriculture by developed countries that were of interest to the developing countries. The decision of both the USA and EU to substantially hike up the agricultural subsidies also cast doubts on their commitments of effectively address the subsidy issue relating to agriculture. Although the US-EU framework of freeing farm trade presented in August 2003 involved some reform – the plan being less ambitious than the Doha Declaration, was unacceptable to the G-22 member governments. Moreover, with the developing countries remaining united in their opposition to the inclusion of “Singapore issues”, no major breakthrough could be undertaken in this regard. The negotiation process has however, not been officially abandoned. The diplomats have pledged to continue the process with a renewed sense of urgency.

In the aftermath of global economic crisis and the unprecedented contraction of world trade, the issues relating to multilateral co-operation, especially the role of the WTO in providing a stable, open and rules-based trading system backed by a forceful dispute settlement mechanism has assumed even greater significance. Indeed, the global crisis has re-emphasised the virtues of relevance, credibility and smooth working of the international trading system.

Responding to the global economic crisis, some Advanced Economies e.g., the USA and even some EMEs e.g. China, have attempted to revive domestic demand through unprecedented stimulus packages. Since such packages are primarily targeted at rescuing domestic corporate entities, they have had some trade-distorting effects – for example, the so-called “Buy American” provisions in the American Recovery and Reinvestment Act, 2009. Moreover, trade finance instruments have become more costly. Despite concerted efforts by multilateral and regional development banks as well as by Advanced Economies themselves, trade finance gap of around US $ 300 billion (WTO estimate) has emerged. Since the end-2008, some Governments have also resorted to protectionist measures. Some minor ‘tit-for-tit” kind of skirmishes have also already taken place – for example, between the US and Mexico, and between US and China. It is comforting however that the WTO members, by and large, have refrained from taking WTO-inconsistent measures, despite domestic protectionist pressures and these adverse developments have not led to a wave of competitive protectionism that prevailed in the disastrous ‘beggar-thy-neighbour’ trade fights of the 1930s.

International co-operation is widely being recognised to be critical in resolving the unprecedented global crisis of such massive proportions. In this context, the G-20, leaders demonstrated exemplary solidarity in their London Summit (April 02, 2009), and resolved to restore confidence, growth and jobs; repair the financial system to restore lending; strengthen financial regulation to re-build trust; fund and reform the international financial institutions and importantly, promote global trade and investment while rejecting protectionism and building an inclusive and sustainable recovery. In fact, the G-20 members have “committed to refrain from raising new barriers to investment or to trade in good and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports and will not retreat into financial protectionism, particularly measures that constrain world-wide capital flows, especially to developing countries”.

Interestingly, WTO Director General Mr. Pascal Lamy has argued that the Doha Development Round would be a solution to the global economic crisis in the sense that it would be one of the most appropriate collective stimulus packages”.

How realistic is this possibility, it is not clear. Short-term fire fighting seems to have taken precedence over the negotiation dynamics of the Doha Round, shifting attention away from negotiations on long term regulation and reform of international trade. Not surprisingly, in some quarters it has even been argued that a failed Doha Development Round be accepted and the international community should start looking for second best options.

To my mind, such a pessimistic prognosis is not desirable. There is an imperative need to conclude the Doha Development Round successfully, even if it is at somewhat less ambitious level, than contemplated initially. The conclusion of the Doha Development Round would certainly send an exceptionally strong political signal against protectionism. That would be possible only if there is willingness to learn lessons from the past, readiness to comprise and a shared vision about a sustainable future.

Thank you.