The Goodness of Globalisation

THESE are heady days for the anti-globalists. The global economy is in a pronounced downturn. Regulatory and professional failure on Wall Street and elsewhere threatened to collapse the banking system and raised serious questions about approaches to risk and remuneration in some of the world's biggest financial institutions. The economic repercussions have been severe, and no country or industry has been left untouched.

According to the World Trade Organization (WTO), the current economic downturn will drive exports down by roughly 9 per cent in volume terms in 2009 - the biggest contraction since the World War II.

But for all the hyperbole about the end of Anglo-Saxon capitalism, it is important to recognise what has worked well in the global economy over the last three decades. Indeed, that task is as much of a challenge and priority as mapping out an agenda for change and reform. Above all, this means renewing, not rejecting, our fundamental global commitment to open markets and open trade.

This year, in recognition of this, the UK is launching its inaugural World Trade Week UK (June 8-12). The US staged the first World Trade Week in 1935. It was launched by President Roosevelt at a point when the US was gripped by a growing mood of isolationism and protectionism, most famously captured by the Smoot-Hawley tariff act. Mr Roosevelt wanted the week to highlight the importance of trade for American growth; and in World Trade Week UK, we want to not only showcase the success of the UK as a trading nation, but to highlight the critical role that global trade can play in the economic recovery and reducing world poverty.

It is tempting in difficult economic times to retreat and concentrate on our domestic markets. And we have already seen a number of countries threatening to do just that. But we need to remind ourselves that the argument for protecting domestic jobs and growth at the expense of promoting world trade simply doesn't add up. History has shown us that protectionism can only exacerbate a recession. Trade, both at home and abroad, is the engine for economic prosperity; it is a key driver for jobs and growth. More trade means more jobs, higher incomes, and cheaper and more diverse goods and services for consumers.

Preserving this openness in the face of protectionist pressures and a dramatic slump in world trade is one of the basic yardsticks by which history will judge political leadership in this crisis. Economic nationalism did not cause the long economic slump of the 1930s, but it deepened it, and acted as a barrier to the return to growth. It also exemplified the most important problem with protectionism, which is that it is highly contagious. It is all too easy for states to get pulled into a negative cycle of action to protect domestic interests that is politically difficult to resist.

It would be a serious mistake to assume that political instincts have changed in the intervening 70 years. The WTO reports that 17 of the G-20 states have erected some form of trade barrier in the months since they pledged not to do so in Washington last year. Because it is more than a decade since the last world trade deal locked in global tariff levels, many states can raise tariffs without technically breaching WTO agreements.

WTO dam must hold

The WTO still acts as a powerful restraint on protectionism - and that dam must hold if the world trading system is to remain open. So long as states continue to accept the basic restraint of WTO rules, then a serious spiral into economic nationalism remains impossible. If a serious player was to step outside those rules, then the consequences could be unthinkable.

The agreement by international leaders at the London Summit in April was therefore extremely important. They agreed there on the importance of preserving the open trading system: by resisting protectionism through a standstill in the creation of any barriers to trade or investment; and by working to complete the Doha Development Agenda for a new world trade deal: not only because a trade deal is in effect a stimulus package, but also because it will lock in tariffs around their current levels or lower, and provide the most powerful possible signal of governments' commitment to act collectively to inject confidence into the global economy.

Real action was also agreed to strengthen the international financial system and provide necessary additional resources (in total, US$ 1.1 trillion was pledged to support jobs and growth across the world). Our task now is to build on this momentum and keep peoples' minds focused on the importance of resisting protectionist messages and defending the recent progress made in freeing up world trade.

It is also vital to remember that open trade can be the most powerful means of reducing poverty. As well as ensuring that UK businesses are vibrant global traders, the UK is investing heavily in transforming the trading capacity of developing countries to ensure that they share in the benefits of trade. No country has lifted itself out of poverty by turning its back on trade. You simply have to look to China and India to see the export-led success stories of the last decade. That's why we are pushing for reform of the global markets and access to new markets for the world's poorest countries. Jointly with partner countries, we have launched Aid for Trade to help overcome the barriers that block poor countries from competing in the global marketplace. We are investing £400 million (S$955 million) annually to help developing countries integrate successfully into the global economy.

The week, which will begin with an international trade conference in London attended by business leaders and leaders in trade policy from around the world, is to include a range of events both across the UK and at UK embassies and consulates across the world. We are encouraging businesses, NGOs and business organisations who would like to support the week to get involved.

The G-20 London summit proved that cooperation and open dialogue across borders can achieve significant results. Through continuing to respect the WTO rules and events like World Trade Week UK, we can and will build on those achievements.

Following the economic crisis, it is true that the international trading system faces a huge crisis of demand and credit, but the real long-term risk lies in the re-emergence of protectionism. It is vital that we do not let this happen - we need to keep trade flowing and to return to strong economic growth to rebuild global prosperity. It is now over 80 years since the US held their first World Trade Week. Those 80 years have seen the progressive dismantling of global trade barriers for industrial goods among developed nations - we must work together to ensure this progress cannot be undone.