No trade without growth

The annual Davos meet — often harshly dismissed as an effete talking shop of world political leaders, corporates and high profile NGOs — has drawn up a plan to revive world trade. Trade now lags world growth, rather than leading it as it usually does. A draft prepared by the International Centre for Trade and Sustainable Development and the World Economic Forum tries to figure out how world trade can crawl back to its pre-2008 level of 5 per cent. The slowing to sub-3 per cent has been a cause for concern, and the breakdown of the Doha Round at the WTO’s Nairobi meet in December even more so. The Davos effort, persuaded by the idea that commerce drives growth (rather than vice versa), focuses on some low hanging fruit to revitalise trade talks. It seems to go further from Nairobi by suggesting that the 1986-88 ‘fixed reference price’ used for computing the permissible level of support for agriculture be reviewed. Trade facilitation issues — such as SMEs adopting e-commerce and digital technologies — are well taken. For example, the banking correspondent network in low income countries has suffered in the wake of the anti-black money laundering drive, impairing local companies’ participation in global trade. The draft argues for an “international appeals framework” in the case of bilateral FTAs. However, on most Doha Round concerns, based on differential treatment for the developing world, the text peddles the standard OECD line. Some of it is a rehash of the Trans-Pacific Partnership: the insistence on labour and environmental standards, and “aligning rules with leading practices regarding…intellectual property”. It also seems out of sync with the prevailing macroeconomic and financial chaos.

Slowdown-hit US, EU and Japan want to prise open new markets without opening up their own. But emerging economies, particularly commodity exporters, are also battling slowdown concerns, squeezing the room for give-and-take. While it is true that the Indian economy has come a long way since the Doha Round began in 2001, the OECD is also becoming averse to granting it developing country privileges. A gradual shift in India’s case away from public procurement in farming towards income support systems may be desirable, but this is in the realm of domestic policymaking. India’s IPR laws could be tweaked to allow minor patents, but they also need to address specific socio-economic concerns.

Despite its holistic intent, the report has overlooked the link between easy monetary policies and global trade. Unconventional monetary policies after the 2008 meltdown pushed up asset prices everywhere, without creating jobs and incomes. This has triggered ‘secular stagnation’ in world trade, for which demand-side steps are required. Today, it is trade that awaits a growth impetus, not the other way around; mere ‘facilitation’ won’t help. How mega trade blocs shape up in a situation of geo-political conflict will also impact trade and finance. In sum, Davos, despite being billed as an intellectual fest, has missed out on “the wider ecosystem of influences on trade and investment” that it claims to address.

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