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Workers make final adjustments in the room in L'Aquila, Italy, where leaders of the G8 countries will meet. (TONY GENTILE)
Workers make final adjustments in the room in L'Aquila, Italy, where leaders of the G8 countries will meet. (TONY GENTILE)

Leaders put focus on free trade Add to ...

For the first time since the onset of the financial crisis, there's reason to feel optimistic about world trade.

U.S. President Barack Obama, Brazilian President Luiz Inacio Lula da Silva and 11 other world leaders appear set to breathe life into the Doha round of global trade talks by pledging to end discussions, which have languished since 2001, by next year.

The news trickling out of L'Aquila, Italy, in advance of the summit of the heads of the Group of Eight countries and five major developing countries that begins today aligns with new European and U.S. reports indicating fresh demand for exports.

The plans to make a forceful commitment to save the Doha round of talks - aimed at helping poor countries prosper through trade - suggest policy makers are taking seriously the biggest drop in world trade volumes since the Second World War. Such a pledge could also signal a stronger resolve to resist domestic pressure to put up import barriers.

U.S. services firms reported in a survey that international orders rose in June for the first time since September, 2008. Government reports in Berlin and Paris showed German factory orders have jumped the most in almost two years, and French exports increased to the highest in four months in May.

There's been little good to say about the prospects for trade through the global recession. With all but a handful of the world's industrial economies in decline, demand for imported goods has evaporated through the recession, leaving producers with massive stockpiles. The credit crunch exacerbated matters by making it difficult, if not impossible, for exporters to finance and insure their shipments.

Further darkening the trade picture has been the continued threat of protectionist policy measures, such as stipulations in the United States and China that stimulus spending must be directed to domestic companies.

Data released Tuesday suggest that the $2-trillion (U.S.) that countries have spent fighting downturns at home might also be reviving the global trading system, which largely has been ignored as policy makers scrambled to unblock credit markets, rescue banks and save jobs.

"The stars are beginning to line up," said John Curtis, a distinguished fellow at the Centre for International Governance Innovation in Waterloo, Ont., and a former chief economist at Canada's trade department. "Trade is the forgotten child through this recession."

To be sure, the glimmers of hope around trade are faint. The World Trade Organization predicts international shipments will decline 10 per cent this year, compared with growth of 6 per cent in 2007.

Investors remain focused on rising unemployment, which is stoking worries that the recession will drag. In New York, the Standard & Poor's 500 index fell Tuesday to its lowest since May 1. Stocks also fell in Toronto.

A full recovery won't come without a revival of trade because countries ranging from China to Germany to Canada are dependent on exports to generate wealth that their populations are either too poor or too small to create on their own.

German factory orders rose 4.4 per cent in May, the biggest increase since June, 2007, a government report showed Tuesday. Demand from outside the 16 countries that use the euro jumped by 8.2 per cent, while domestic demand rose 3.9 per cent, the report said.

Orders were almost 30 per cent lower than a year earlier.

In France, resurgent demand from abroad caused the country's trade deficit to narrow to its smallest in five months as exports rose to a four-month high of €28-billion ($39-billion U.S.). In the U.S., the Institute for Supply Management said its index for new export orders at non-manufacturing firms rose to 54.5 in June from 47 in May.

But the biggest jolt to the trading system came from Italy, where G8 leaders and their counterparts from China, India, Brazil, Mexico and South Africa will agree to successfully complete the Doha round of negotiations by 2010, according to a draft of the summit's concluding statement obtained by Reuters news agency.

The talks have been all but stalled for a year after the United States and India failed to bridge their differences on agricultural policy, among other issues.

Mélisa Leclerc, a spokeswoman for Trade Minister Stockwell Day, said Canada supports the completion of Doha, although she declined to say whether leaders are poised to commit to a deadline. "In the current global economic crisis, pursuing an ambitious free-trade agenda is more important than ever," she said.

With files from Bloomberg

Follow on Twitter: @CarmichaelKevin

 

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