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Friday, 12 November 2010

Europe in the G20

Regardless of we are talking of reinstate the gold standard or quantitative goals for current account balances, the Seoul G20 summit is about trade. So it is hardly a coincidence that European Commission released its trade policy communication the day before the summit - but who plays the lead and speaking for the EU, who has been caught in the cross-fire between China and US, and the friendly fire from the populist sentiments at home?If London G20 went down in history as the one of financial crisis, Seoul G20 summit will go to history as the one about trade. Global imbalances are merely euphemism of current account imbalances caused by large trade surpluses and deficits. As all world leaders pledge their allegiance against protectionism, the US proposal of numerical ceilings is an eerie reminder of the mercantilism through 'voluntary' export restrictions (VERs) during 1980s. 'Japan' was the common enemy (or scapegoat) then – and today it is 'China'. Cars and electronics continue to be causes for friction, but has spilled over to all sectors of trade. These are strange days when Germany, Japan and China are running in forefront to protect free trade against United States.Several ill or well timed events and statements have been leading up to this summit. Most notably, both Japan and US have applied quantitative easing. The latter caused the German Finance Minister Wolfgang Schäuble to call the measure "clueless". He is right. As for currency fixing, the world already knew there were - literally - two sides of the coin. Something that caused less tension ahead of G20 happened yester afternoon as the European Commission released its trade policy communication. Given the focus on trade in Seoul, the timing is hardly a coincidence. And although much of its contents have been circulating in Brussels for some time (try to hide the family silver with 27 delivery entries), its final release passed remarkably unnoticed in Seoul - which is a shame.There are assumptions in the Trade Policy Communication that are sound, and that reverberate many of the arguments presented by some ECIPE scholars for years. For example, it acknowledges that 90 percent of the growth in the coming decade will come outside the EU - most of it from China - and the need for Europe to tap into that growth abroad rather than posing it as a problem, or try to "catch up". It is a clear statement addressed to the leaders of EU member states who are engaging in introspections and give way to protectionist sentiments; the communication recognises that external integration is interlinked with the need for further liberalisation at home inside the Single Market. But all's not well – the narrative and the hard sell is about protecting jobs at home. There are strong indications for symmetries in public procurement (tit for tat against China), safeguards and emphasis on trade defence instruments (TDI).It is especially alarming that despite vows to fight protectionism, the Commission is trying to bypass the member states on antidumping (vehemently opposed by Germany, UK and Scandinavia). According to Global Trade Alert, EU has imposed more discriminatory measures than any other (166) - twice the amount of the runner-up, the Russian Federation. In number of affected tariff lines, EU is only surpassed by Vietnam, Venezuela, Kazakhstan, Nigeria and Algeria. The Commission, does not only lack a front row chair in G20 - as for now, it lacks credibility.Another German truth sayer is Angela Merkel, who spoke against quantified BOP by saying it's not only a question of exchange rates but competitiveness too. She may be speaking in self-interest (Germany has not only a magnificent trade surplus, but an impressive factor productivity and competitiveness), but such frankness is needed in Seoul. It took the trading system more than a decade to get rid of the VERs. While some European member states have been cautious about German leadership (especially amongst those who call themselves federalists), they fail to remember that the success of Europe in monetary and economic area is founded on German initiatives and willingness to engage. The leadership on China issues are another area of new found German initiative, regardless of whether the German stance to play rough is right or wrong. Either way, it is in stark contrast to Commission's line that seem to suggest that China caused the global financial crisis.No wonder the world listens to Berlin and not Brussels in G20 for the European trade communication.

Soource: ECIPE