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G8 and trade: the development angle

Written by Yurendra Basnett

The list of competing priorities for this year’s G8 summit was whittled down to three by David Cameron. Alongside tax and transparency sits another complex global issue: trade. Usually at such major conferences there are one or two elephants in the room but if any of the leaders venture into the rooms of Lough Erne where delegates are discussing trade they are more likely to find two mammoths in the shape of the fledgling transatlantic and transpacific free-trade agreements.

One of the best things the summit could manage would be progress towards trade agreements that boost struggling G8 economies. Sluggish growth in the G8 itself is acting as a drag on international trade and finding a renewed impetus could create a dividend for all. But that’s a statement of the obvious. What’s less clear is that G8 leaders will avoid taking their eyes off the ball when it comes to the consequences of such mega-deals for the world’s poorer economies.

Though still in the making, the two trade agreements will have important implications across the global economy, not just in negotiating countries. Taxes on imports in the negotiating countries are quite low (more so in the case of the Atlantic than the Pacific). This means that further reductions in such taxes are unlikely to result in significant gains for them. Nor are they likely to substantially impact those not involved. So if these trade negotiations are not about trade taxes then what are they about?

Negotiations in both agreements also include non-tax-related measures: for example, the setting of trade standards in the car industry. Common standards on both sides of the Atlantic would mean manufacturers would no longer have to operate two separate production lines. A good idea in theory, but it could also shift trade away from production networks that do not benefit from the agreement. For instance, if the Japanese car industry is adversely affected by EU–US trade standards, the impact will be felt across the Pacific in countries such as the Philippines and Samoa. The winners and losers of any trade deal will be created well beyond the borders of the signatories. It’s worth remembering that such agreements are governed by a defining principle of ‘do no harm’, meaning that any two countries (or sets of countries) can strike a deal without making it any harder for a third party to continue to access the market.

In the murky and complex areas of standards and technical requirements, there is a thin line between expanding and restricting trade. Most developing countries lacking capacities are likely to find themselves facing costs not benefits. The World Trade Organization ministerial conference follows the G8 later this year and needs to consider updating the rules that govern such agreements. Perhaps the notion that some benefit – but that others are not left worse-off – needs to be established as a minimum when advanced economies enter into such agreements, with the burden of proof placed on members of the exclusive arrangement. At the very least we need to keep an eye on how this plays out for developing economies that are not a part of these agreements.

Another issue at the G8 table will be trade facilitation. It is also an important item at the forthcoming biennial WTO conference in Bali in December. For now, the UK has proposed supporting African countries to reduce border crossing time and to increase intra-African trade. This is to be welcomed. The summit could also help build momentum ahead of the Bali conference. However, the discussion on trade facilitation would benefit from considering two potentially unforeseen consequences. First, while making borders more efficient is a worthy development objective, we must also ensure that workers who earn their livelihood from delays at the borders are provided better employment alternatives. Second, efficient borders will only lead to more trade when a country is also able to produce better goods and services, and where there is institutional capacity to effectively manage such improvements. Efficient borders will provide value for money when they are facilitating more trade; efficient borders with no trade will be merely white elephants.

The G8 summit should expand the scope of its trade agenda to include elements that will be good for development, as well as for G8 countries. Ensuring that developing countries have a role to play in new production networks, investing in helping countries export better quality products and reducing the thickness of borders are all desirable outcomes. The G8 may not be able to grant all of these wishes at a single stroke, but it can show a statement of intent that would be impossible for the WTO to ignore.

Each piece of the G8 puzzle is complex and trade negotiations are historically hard to progress. The principle of ‘do no harm’ makes breakthroughs harder to come by, but when they do come their potential value is much greater than that offered by aid increments. If the G8 were to forget that fact then they could be paying for it for a few years yet.