Shuaihua Cheng (London - Dec 2010)


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Shuaihua Cheng (London - Dec 2010)

  1. 1. A presentation byDr CHENG Shuaihua, ICTSDWorkshopSearch for Post-Crisis Growth Models and Policy Tools for Macro-CoordinationChatham House, CIGILondon2-3 December 2010<br />Cooperation and the trade agenda:A Development Perspective<br />Introduction <br />Let me thank Paola for inviting me to participate in this workshop. The theme of the workshop, scoping tools for post-crisis policy coordination, and its objective of advancing sustainable development, is a timely and intriguing one. <br />By way of background, the ICTSD, which was created some 15 years ago, is a global organization exclusively to advancing Sustainable development in the context of international trade related issues and negotiations in the WTO, regional trade agreements, and other multilateral fora such as climate change, intellectual property rights, development assistance which incorporate a trade dimension.<br />Given this track record, and the assignment given to me, i thought it fitting to share some of observations on trade related policy coordination, from a Sustainable development perspective. <br />Let me touch on 3 points, respectively on WTO Doha Round negotiations, trade related climate issues, and cooperation for international development.<br />First,policy coordination in the WTO is very political; How major players are going to respond will be critical for policy cooperation in the WTO. <br />According to its core agenda, reducing tariffs by a doable 50% would yield savings of over $150 Billion USD alone. A recent research by Peterson Institute shows, the total payoff of a Doha Deal could reach $280 billion each year. <br />In spite of obvious general wellbeing, why consensus has not been reached yet? One reason is the tention between developed and developing countries over Western countries subsidies for agriculture. Developing countries take a unified view: if the AG subsidies in the West are not subjected to significant reforms, then they will ensure that nothing else will move.<br />The other reason is a vacuum of leadership in the WTO. Traditionally, the US (together with the EU) had been the locomotive for the WTO. Yet, today the US finds itself in a weakened political and economic position.<br />Has the financial crisis awakened the U.S.? No. signals from Obama Administration show even less interest in moving the Doha Round. It mainly comes from its domestic economic sentiments. Voters’ confidence in globalization has shaken. They are increasingly concerned about losing their competitiveness and their job in brutal trade liberalization. <br />This resulted in a vacuum of leadership at the WTO, which sucks oxygen in the negotiation rooms now. <br />Can any other countries –emerging or developed- come forward to make up the short fall? If truth be told, many linger in the shadows of the U.S. and wait.<br />However, there is a new proposal to suggest China and U.S. have a grand bargain which may offer a small window of opportunity for the Round. <br />In August, two American scholars Gary Hufbauer and Robert Lawrence, suggest China and the US do three things respectively. For China: join Government procurement Agreement; join sector liberalization agreements in chemicals, information technology hardware, and environmental goods; Finally, China should be active to liberalize services. <br />For U.S., phase out cotton subsidies -- which were ruled illegal by the WTO two years ago --; put a cap of $9 billion on all its agricultural subsidies; extend duty-free, quota-free treatment to virtually all the exports of the least developed countries. <br />This proposal may or may not work, but the point is clear, the policy cooperation in the WTO is very much depending on political dynamics among major players. Big boys need to find creative solutions. Otherwise, growth opportunities will be wasted; and the WTO will risk running out of credibility and relevancy. <br />2,Seond, in an effort to enhance international policy coordination, tools to monitor climate protectionism becomes critical. <br />With climate change tops international agenda in recent years, a new form of trade and technology protectionism is emerging in the name of combating climate change. Policy coordination is urgently needed to set up norms and rules.<br />The starting point is to set a price of CO2 emission for the purpose to internalized climate cost. It sounds great if it is operated within one country. A bone of contention is: whether imports would have to be certificated as to their carbon content, and would be taxed accordingly. <br />Proponents of this idea in the US and EU have two arguments: first is competitiveness concern – U.S. and EU producers would otherwise be disadvantaged by the higher costs imposed by stricter domestic standards. Second, a tax would urge developing countries to cut their carbon intensity of their economy for fear of losing export markets.<br />On the first argument, there is no clear evidence that, in the long run, environmental regulation does much to suppress economic growth. After all, in Germany and in State of California, greenery and growth coexists handsomely. <br />On the second argument, using trade sanctions is not the only way to bring China and India round. What’s more, the costs of a border carbon tax could be huge because of the massive bureaucracy needed to certify the carbon content of different goods imported from different factories in different countries. <br />Here is also a question of justice, as developing countries claimed. Developing countries have lower technology capacity and thus cannot match the developed countries. After all, it is developed countries unconditional responsibility to reduce emission because the current climate problem was created by rich countries in past two centuries.<br />EU has been quiet about border carbon adjustment for a while. But it may change. Because the ‘cap-and trade system’ was dropped off from US climate bill and a minimum 17% reduction target from 2005 level have NOT passed through the Senate; EU is more likely now than before to raise the issue of border carbon tax.<br />The issue of climate related trade measures will arouse debates in the COP16 in Cancun these days. For our workshop, we need to highlight the risk of climate protectionism in the surveillance radar. <br />3, Third, the fact that UN MDGs is far off track by 2015 will add urgency foreffective policy cooperation and global governance for international development aid; it immediately matters to at least 3 billion people life or death. <br />Global development governance is the subject of intense debates, particularly when UN Millennium Development Goals (MDGs) remain gloomy after decades of aid. But there is no single place today where all countries can both agree on the rules, and monitor their implementation. Rather, there are several places, with different strengthen and weakness, creating overlaps and gaps. This eclectic set of arrangements scarcely merits the term of ‘governance’, as most norms are set by a limited club-like group (the OECD), and the norms are only norms, not rules. Despite the need for coordination, there is no formal monitoring, penalty, or reward mechanisms in the field of international development. <br />A weak regime for international development carries major downsides. The top five problems are: support is not predictable; some countries are chronically under-aided as the crowds focus elsewhere; fragmentation of sources and earmarks piles up transaction burden and distorts national allocation decisions; governance, human rights and the environment are challenged where corruption sprawls; economic and job opportunities are wasted due to lack of supply capacity, infrastructure and effective market access overseas.<br />What’s more, there is the rising prominence of development assistance from non-traditional donors such as Southern countries like China, India, South Africa and Brazil as well as private foundations. It has aroused both enthusiasm and concerns. One side contends that practices of non-traditional donors in official aid and other forms of development finance pose a significant challenge to the norms governing the international aid architecture. The other sees the rise of a new development partner and suggests that new donors might provide a miraculous alternative to poorest countries faced with decades of ineffective aid by traditional donors.<br />How should the policy world respond? At least two priorities: First, the fragmented institutions related to international aid architecture needs to be restructured in a more streamlined fashion, taking into account both legitimacy and effectiveness. Those institutions include IFIs, UNDCF, OECD-DAC, and WP-EFF. Second, OECD and emerging donors need to reach agreement on coherent and transparent approaches to policy-making and implementation of development aid. <br />In closing<br />In closing, I am not sure if we are already out of Crisis. Apart from public credit crisis and high unemployment rate, there are some structural weaknesses are not less dangerous: namely, Absence of leadership in the WTO, rise of climate protectionism, and a fragmented regime for international development aid.<br />It is not easy. Indeed, sometimes I think these problems overwhelm our capability.<br />But, in making a difference for the better, the central question remains the same: how we will choose to respond?<br />From finance regulation, to trade agenda, climate and development aid, the common sense of global commons is essential. Major players shall take a step further from local politics to acknowledge the new global reality. Everyone is going to lose if we do not enhance macro-coordination now.<br />ICTSD is one example that has been successfully engaging and empowering stakeholders to have a better understanding of the world new reality, and will contribute to better cooperation in particularly in the fields of trade, climate and development aid. <br />In closing, congratulations to the research team. I think your work to Make a policy toolbox available is critical, so that leaders, from both developed and developing countries, will enter the international policy room with the confidence to translate political will into pragmatic solutions. <br />Thank you.<br />