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G-20 heads to Pittsburgh with flat tire on trade

World leaders meeting this week this are expected to renew pledges to resist protectionism and finish long-running world trade talks but they have already damaged their credibility on both fronts.
/ Source: Reuters

World leaders meeting this week are expected to renew pledges to resist protectionism and finish long-running world trade talks but they have already damaged their credibility on both fronts.

President Barack Obama hosts the Group of 20 leaders in Pittsburgh barely two weeks after slapping a tariff on tire imports from China, a move Beijing blasted as unjustified and domestic critics said sent the wrong message on free trade.

Obama's tire tariff was just the latest trade barrier imposed since G-20 members pledged to resist protectionism at their first meeting last November, when fears were high the global financial crisis could cause another Great Depression.

"The main risk is that G-20 members will continue to cede ground to protectionist pressures, even if only gradually, particularly as unemployment continues to rise," the World Trade Organization, the U.N. trade and development agency UNCTAD and the Organization for Economic Cooperation and Development said in a joint report for the G-20 summit.

A move to increase import tariffs by the U.S. Congress in 1930 is blamed for deepening the Great Depression as other countries around the world responded with trade restrictions.

While "high-intensity protectionism" has been avoided this time so far, G-20 countries could aggravate the contraction in trade and undermine confidence in global economic recovery by throwing more and more "sand in the gears," the report said.

The timing of Obama's decision couldn't have been worse, said Dan Price, who was assistant for international economic affairs to former President George W. Bush and now practices law at Sidley Austin.

"Our trading partners are not looking at this decision in a vacuum," Price said, adding that Obama's inaction on pending bilateral trade deals with Panama, Colombia and South Korea and a cross-border trucking dispute with Mexico have already raised questions about his commitment to expanding trade.

The tires case makes it hard for G-20 leaders to strengthen their pledge not to use WTO-legal trade barriers, such as the import "safeguard" mechanism Obama invoked against China.

The spat could also hinder Washington's bid to persuade China to rely less on exports and increase domestic demand as part of an ambitious U.S. push to rebalance the world economy.

Many say the best way to narrow the scope for protectionism would be to finish the long-running Doha round of world trade talks as that would lower maximum tariffs nations can impose.

But no end is in sight for the talks, despite pledges by Obama and other G-20 leaders to get a deal by late 2010, a Peterson Institute for International Economics paper said.

The Doha round, which will be eight years old in November, is already the longest set of multilateral trade talks since the modern rules-based trading system began.

Many trade experts hoped one silver lining from the global financial crisis would to strengthen efforts to reach a deal that would the world's economy a badly needed boost.

After taking office in January, Obama focused first on a huge stimulus to the U.S. economy and then on a domestic agenda that so far has included little attention to trade.

Hopes have diminished that Obama and other leaders could give their trade negotiators fresh instructions this week on how to overcome the main stumbling blocks.

"It looks increasingly likely that the G-20 is not going to produce the type of detailed mandate for the negotiations that is required," said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.

Briefing the WTO's 153 members on what he will tell G-20 leaders, WTO Director-General Pascal Lamy refrained on Tuesday from his usual comment that a Doha deal is doable.

"At this stage I remain cautious in my forecast. It would be premature for me to predict today that the necessary political engagement will in fact take place over the next three months," Lamy said in a speech in Geneva.

To bolster chances of meeting the end-2010 target for finishing Doha, the European Union has proposed an interim deadline of the end of 2009 for agreeing on the key formulas for cutting tariffs on farm and industrial goods, as well as reining in domestic farm subsidies.

U.S. businesses fear that could mean a deal without clear new export opportunities for them.

"We have not been seeking meaningful market access for eight years just to throw it away because someone wants an artificial deadline," said Frank Vargo, vice president in charge of trade for the National Association of Manufacturers.

Given the state of the talks, it would be counterproductive for G-20 leaders to set an interim deadline now, Schott said.

That's largely because countries have not really begun negotiation on trade liberalization in services, such as banking and insurance, which the United States badly needs to be part of the deal, he said.

Other countries may think there is enough on the table in the agriculture and the manufacturing portion of the talks, but "if they try to cash that check it will bounce ... when it hits the floor of the Congress" in the unlikely event the Obama administration would agree to such a deal, Schott said.