Big chance for Zuma at G20

AP

Oxfam activists wear masks of world leaders as they protest at the Revolution monument in Mexico City, Thursday, June 14, 2012. The activists demand a halt to tax evasion in order to end world hunger and poverty. Mexico will host the G20 summit starting June 15 in Los Cabos. (AP Photo/Alexandre Meneghini)

President Jacob Zuma will have the usual long and varied wish list in his pocket when he arrives today at Los Cabos, the resort city on the southern tip of Mexico’s Baja California peninsula to join other world leaders for the G20 summit.

That list will include a call for rich countries to pour more resources into African infrastructure development; a demand for another seat for Africa on the IMF Board; measures to tackle fast-rising food prices to increase food security; a revival of the Doha development round of international trade negotiations, and serious action by Europe and the other global powers to stabilise the rocky global economy, among many others.

But Luis de la Calle believes that Zuma should use his brief time on the podium of this most important global forum to concentrate on one thing: pushing for a grand global bargain that would in one big sweep, solve Europe’s debt crisis by reviving global trade negotiations. No less!

De la Calle led Mexico’s negotiations for the 1993 North American Free Trade Agreement (Nafta) which has been a huge boon for the Mexican economy. So he knows how trade can lift countries, and the world economy.

Many observers express fear that the elections in Greece this weekend will engulf the summit, distracting world leaders from their agenda.

But the Mexican government believes, to the contrary, that having the leaders who represent about 90 percent of the world economy gathered in one place at just this time, is a happy coincidence because it gives them an opportunity to address the fallout from the Greek elections – including perhaps its exit from the euro zone – and the crisis in general.

“It underlines the usefulness of the G20,” De la Calle agrees..

The Mexican government and he all hope that Europe’s leaders will use the G20 summit to decide on a Europe-wide measure to save faltering banks. As a firewall, that would prevent the debt crisis spreading.

But De la Calle believes that in the longer term only increased trade can solve the crisis by reducing the imbalances among economies that caused the problem originally and by boosting growth.

The Mexican notes that in 2008, before the crisis, there were countries with large and growing trade surpluses and others with large and growing deficits. And the world economy is closed, he notes. “So your surplus is my deficit.”

One way for countries to reduce their trade deficits is to cut back on imports, he says, which is the current thinking.

“But if everyone does that, the overall level of economic activity goes down and the possibility of exporting ceases. So it’s better to adjust with more exports, which means countries can take more imports.”

Another way of tackling the problem is what the US is trying to do, browbeating China to appreciate its currency which it is now keeping artificially low to encourage exports. A stronger Chinese yuan would increase its imports and reduce its gigantic trade surpluses with the world.

But Beijing is resisting these efforts. De la Calle says a smarter way to tackle the global trade imbalances is to open up markets more.The Doha development round of trade negotiations in the World Trade Organisation (WTO) has been stuck for a decade.

Mexican officials say the communique at the end of the summit will almost certainly repeat the mantra of past summits that there should be less protectionism and Doha should be revived.

“But instead of just repeating that the G20 should go to the next level, say: ‘Let’s open up the economies which are closed’,” says De la Calle.

“And which are those? They have to be large, to matter. And they have to be relatively closed.

“That’s China, India, Russia and Brazil – the Brics,” he says (significantly not including SA because it is too small to make a difference). So why not put on the table that the Brics open up to make a contribution to international trade which makes a contribution to rebalancing the world economy and thus regaining macroeconomic stability.”

But why would the Bric countries agree to do that?

“China might do it in return for less discussion about currency realignment. India has a significant interest in keeping the services sector open because they are a large exporter of services. Brazil is a larger exporter of agricultural products and so they have a vested interest in those markets being opened.

“And they also have a large interest in progress in the Doha round to reduce agricultural subsidies.”

And De la Calle believes that the European crisis might just be presenting a fortuitous opportunity to break the logjam in the Doha negotiations by tackling the European Union’s gigantic subsidies to its farmers – of some e75 billion (R750 billion) a year – which are also a big problem for SA.

Why would the countries with big subsidies consider reducing them?

“The European Union has big budget problems right now. Half of its budget goes to agricultural subsidies. Agricultural prices are now high so maybe there is no need for subsidies.

“So maybe this is the right time to have a multilateral disarmament on agricultural subsidies. If the EU feels the need to do it, they could talk to Switzerland, Japan and the US and say: ‘Why don’t we, in the context of the G20, lower our subsidies?

“That would give us some savings which we could use to guarantee (bank) depositors in the European Union. “

As Mexico did during its own financial crisis in 1995, De la Calle believes that Europe as a whole should guarantee bank deposits to prevent a run on banks, leaving the banks themselves and their shareholders to sink or swim.

De la Calle believes that German chancellor Angela Merkel might support his idea of trading out of the crisis as Germany has never liked paying for the agricultural subsidies. New French president François Hollande would oppose the idea because he has a large agricultural constituency

Greece, Italy and Portugal would probably also oppose the idea to protect their olive oil industries, he says. “But those countries are not in a position to negotiate anything right now.

“So this is the right time to do it. So you have to convince one person, François Hollande.”

De la Calle believes that Merkel could persuade Hollande to lower subsidies by agreeing in turn to ease up on austerity measures in Europe, as he demands, and do more to stimulate growth.

She could tell him: “François, you want an agenda on GDP going up? The agenda is more trade and more growth.’”

De la Calle believes world leaders have forgotten the contribution that trade can play in reviving the world economy because everyone is thinking of financial solutions, of monetary policy.

“People think that moving on trade is politically impossible until you start thinking about it. The EU is relatively open, the US is relatively open, Japan is more open than it used to be.

The issue for them is agricultural subsidies.

“This is the time to lower those subsidies because they need the breathing space on the financial side. Spending e75 billion a year on agricultural subsidies is madness.

They should use that money to rescue the banks.

“But they can’t do it unilaterally, they need to do it multilaterally and that’s why the G20 might be of use.

De la Calle happily acknowledges that it’s unlikely that the G20 will rise to the occasion at Los Cabos this week by coming up with such a comprehensive and imaginative solution to the crisis.

“But if you had a big picture guy who has a vision for the world, where would you propose this sort of vision? There is only one venue, and that’s the G20.

“A crisis like this might be an opportunity to put subjects on the table that might otherwise not be put.”

De la Calle believes that Mexican president Felipe Calderon could be the right person to present this vision, but that he won’t. Mexican Agriculture Minister Francisco Mayorga says the world is moving in that direction, but is not there yet.

“So maybe South Africa should propose it at Los Cabos,” says De la Calle.

As a member – with countries like Brazil, Australia, New Zealand and Thailand – of the Cairns Group which is pushing for the opening of world trade markets, SA is an obvious candidate for the job, he says.

Noting the many and diverse items on SA’s wish list for the summit, he advises: “Concentrate on one thing! Angela Merkel would appreciate it. It would give her more room.”

n Fabricius is Foreign Editor