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Tour de Trade

He walked into the Brussels hotel suite looking energetic, despite the many obstacles he is facing as World Trade Organization director general.

Fresh off a trip from Washington, where he met key players of the Obama administration, Pascal Lamy knows that finalizing the so-called Doha Trade Round, which was launched in the Qatari capital eight years ago, is not the world's number one priority these days.

Well ahead in this race to mend the global economy are: Cleaning the system of toxic assets, re-regulating the global financial system to avoid a repeat performance of the 2008 meltdown, and even trying to close down or limit the use of tax havens.

Those other issues however do not prevent the former French politician and European Trade Commissioner from performing his “Tour de Trade.”

Mr. Lamy aptly said that trade negotiations are like riding a bicycle: “either they move or they fall.” The key now, he says, is not to let them move backwards: “First thing we have to do is push back on protectionist measures which understandably appear here and there."

Having covered the final Uruguay Trade Round in Geneva where there were far fewer countries, and talks were dominated by the U.S., Europe and Japan, I know that this Doha Round is much more complex.

The key difference is that what was not covered the last time around has been swept into this attempt. More importantly, China, India and all the other developing country players are feeling emboldened by their new roles in the global economy -- they do not want to be bullied into a deal they don’t see as favourable to them.

In the G20 process, all the major players are sitting around the same table. That, in theory, should help this effort but, so far that has not been the case.

At the European Business Summit in Brussels, the largest business trade group in the European Union, Business Europe, said that 17 of the G20 have participated in some form of protectionist practices.

Director General Lamy admitted they are not breaching the rules of the WTO, but they are stretching the limits these days in various ways, like by filing more anti-dumping cases, or by nudging tariffs to protect industries such as auto-makers and textile manufacturers.

So "the DG," as his staffers refer to him, has adopted a new line that appeals in particular to developing giants like China: Don’t see the Doha Round as a process of giving up something, but as an insurance policy to protect the now vulnerable G7 countries from backing out of their commitment to free trade.

“Keeping the insurance policy which the WTO offers for the world against protectionism; that is very important at this stage, to make sure it does not move back,” said Lamy.

This is where we should watch closely. Mr. Lamy was encouraged by President Obama’s action to draw a line in the sand in terms of policy when he stood against the “Buy American” clause being put forward by the U.S. Congress.

Pushing that through would have rolled back the clock to the 1930s, when the Smoot Hawley trade act exacerbated the Great Depression. Since many compare this global depression to that one, there have been great fears that policymakers would follow the same tack, ignoring historical evidence against such a move.

But, when asked directly if Washington is committed to passage of the Doha Round, Mr. Lamy replied, “That is the general line they are taking.”

Until the President of the United States and his counterparts in the G20 jump right into the global trade "pool," don’t expect rapid movement. That was the case in the previous round, and the only real difference here is that a global recession does not lend itself to signing onto measures that may be seen to jeopardize jobs for textile workers, farmers or auto-makers.

The DG makes another valid point: While G7 countries, especially the U.S., can open up the taps to jumpstart their economies by spending a collective $2 trillion, many developing countries in Africa and Latin America cannot. Trade to them offers what Mr. Lamy calls “a bit of blue sky” -- a hope to grow their way to prosperity.

Against this backdrop, regional trade blocks should not place all their bets on the Doha Round.

The Greater Arab Free Trade Agreement has 18 countries of the region loosely agreeing, at this stage, to create their own market of nearly 350 million people. It looks promising on paper.

As Saad Hariri, leader of the Future Movement in Lebanon noted during an interview, this downturn should prompt leaders to move this process forward to create inter-Arab trade and ultimately jobs. Lebanon is applying to the WTO to join the other 11 regional states who have become members of that organization since 1995.

“Regional integration and opening trade globally are two things that have to go together,” notes Mr. Lamy. There is not the threat that regions will live in isolation as the world trade talks stall.

But how about getting past the final two or three hurdles to get a deal done in 2009?

Calmly the DG states, “We are 80 percent of the way, but we have a couple of tough nuts to crack.”

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It’s Interdependence not Independence
After the price spike of 2008 to $147 a barrel last July, politicians the world over were quick to latch onto the issue of energy security. As petrol prices surged, they felt the need to articulate a strategy for energy independence.

The new president of the U.S. put this policy at the center of his election campaign and after entering the White House did deliver on the promise to put billions of dollars into ‘green energy’. The size of the investment surged because the sector was seen as a prudent way to create jobs as part of the near $800 billion stimulus package.

I would be the last one to argue against money being invested into alternative energies, invested in conservation or for that matter efficiency in the fossil fuel sectors. The final category is rarely discussed as we assume that national oil companies (NOCs) or the major international oil companies (IOCs) are getting what they can out of each barrel in the ground, despite suggestions otherwise by some industry insiders.

At the 4th OPEC International Seminar held in the imposing Hofburg Palace in Vienna, OPEC oil ministers and chief executives from five major NOCs looked into their crystal balls to see how they can best plan for the near and medium term.

The oil minister of the world’s number one exporter Saudi Arabia, Ali Al Naimi told us in an interview the market is close to being in balance; OPEC has put a floor under prices and that “from a material point of view I believe we have made enough cuts." That was a relief to struggling global economies who feared that OPEC producers might try to cut one more time to boost prices. But it is not all clear sailing in this environment.

The veteran oil minister and former OPEC President Rilwanu Lukman perhaps summed up the challenge at a speaker’s dinner on the eve of the seminar by saying “We need to know where the heck we are going.”

Where are we going after the cliff-like drop from $147 to $40 in the last eight months? After taking notes during the chairing of this seminar and talking to ministers on the sidelines, it would appear we collectively (producers and consumers) are doing some poor planning.

John Lipsky of the International Monetary Fund said the perfect storm of a cyclical downturn together with a financial crisis will mean that the dislocation of the global economy will much more severe than we have seen since World War II.

While OPEC did the right thing (to paraphrase the Spike Lee movie title ten years ago) by holding production steady after record production cuts in the fourth quarter, if prices do not recover as member producers hope by the end of the year, it seems clear that $100 will be back by 2013.

Presentations from the Riyadh based International Energy Forum and the Paris based International Energy Agency point to a supply/demand crunch already underway. $40-50 oil is providing a stimulus to the global economy of $1 trillion versus $100 oil last year, but all the participants here suggested that at the same time oil producers, as a result of lower revenues, will stall further investments. The basic sums for them do not add up right now. With three-quarters of proven reserves in the hands of OPEC members (primarily in the Gulf) they are being selective about their investments and financing development of non-oil priorities; the basics like schools, hospitals, roads and yes alternative energies.

The Secretary General of OPEC Abdalla El Badri told us during an interview “We cannot invest in any future capacity. This is not viable.”

The bill to get daily production up to add 64 million barrels a day of capacity needed by 2030 is now estimated by the IEA at $26 trillion dollars. Energy demand is expected to rise 45 percent in that time frame. Yes they are suggesting Brazil, Russia, India and China, the Middle East and Southeast Asia will bounce back robustly in the next two to four years and march upwards from there.

That sort of growth would be welcomed in the medium term, but until that happens we can expect some real near term problems. First and foremost, who will finance the $26 trillion dollars or say a quarter of that in the next five years if banks are clogged and national oil companies want to hold onto a greater share of revenues from the crude they own? This is the trillion dollar question. International oil companies have plenty of cash on hand to co-develop fields in oil wealthy, but cash poor oil nations, but it is not clear they will be welcomed with open arms. We have all witnessed what transpired in Russia with the re-working of elephant field projects. Shell and BP are paying a high price in that process.

Jeroen van de Veer the Dutch CEO of Royal Dutch Shell avoided the thornier joint projects and instead looked at other successes in Russia, Nigeria and Qatar, but he did outline the “new rules of the game.” It involves greater interdependence of consumers and producers and the same of IOCs and NOCs. Confrontation leads to delays; production delays lead to volatility and in the end consumers pay the bill for poor planning and friction.

While this dance to greater interdependence just begins, it was fascinating to witness how dependent this group remains on the daily price of crude. Five oil ministers and one chief executive all perked up when one of their peers quoted the latest quote from the floor of the New York Mercantile Exchange while at dinner. $49.70 was the latest price -- $4 higher since OPEC decided to leave production where it is.

Oil prices rose alongside the stock market rally. The market rally was linked to the first hopes of an economic recovery in a long while. While the rhetorical gap between producers and consumers may seem at an all time high, the reality is interdependence has never been greater.

Avoiding April Fools Days
I have the picture in my mind. A marathon will be run in London on 2 April with a whole group of global leaders not only stumbling at the finish line, but unclear where the ribbon marking the end really is.

Welcome to the upcoming Group of 20 Summit. If we go by the expectations outlined by Britain’s Chancellor of the Exchequer, Alistair Darling, the bar is being set very low.

"We must act together not as a small group of advanced economies but globally with the emerging and developing economies.”

This was Darling's opening statement before he welcomed his peers to a preliminary meeting two hours from London. That was a warm gesture to the faster growing economies of China, India, Turkey and Saudi Arabia. To be candid, I thought those niceties were covered off in Washington back in November.

"Our common interest need not contradict a country's self-interest -- in fact, it can complement it. And it's all part of rebuilding confidence," was Darling’s effort to rightly douse the protectionist tendencies inherent during a crisis.

Beyond the broad strokes, however, the host nation is providing little to grasp onto.

Perhaps this is the classic understated nature of the British approach -- offer few clues and deliver way above expectations. However, it is a strategy that could end with a terrible train wreck if, at the close of the summit on 2 April, world leaders look like they have been "fooling" around.

The British Chancellor rightly noted we cannot expect a "complete consensus overnight." Maybe we are using a different calendar, but this crisis is at least a year and a half old.

The transatlantic alliance seems to be alive and well at this critical juncture and the new U.S. President is already spending some political capital supporting Gordon Brown.

"We've got two goals in the G20," Barack Obama stated firmly. "The first is to make sure there is concerted action around the globe to jump-start the economy. The second is to make sure we are moving forward on a regulatory reform agenda."

Prime Minister Brown’s counterparts in Europe don’t quite agree with the first statement. There is a reluctance to prime the pump even more by flooding the market with the new buzz phrase "quantitative easing."

It is difficult to define the second goal.

French President Nicolas Sarkozy outlined some big plans for a new financial architecture last autumn -- a regulatory superstructure to better track those tricky derivative products that got us into this mess.

Sarkozy wants to rebuild the Bretton Woods institutions established after World War II -- the International Monetary Fund and the World Bank -- to play hardball in the 21st Century. It is a grand concept but support to move forward seems to be in short supply.

The British hosts say there is a wide-ranging agenda on the table 2 April. That, perhaps, may be the problem.

During his address to the U.S. Congress, we heard from Mr. Brown that shutting down tax havens and eliminating bonuses to non-performing bankers are priorities.

They may be hot button issues on the fairness agenda, but they will not solve the problem of recession or freeing up capital for businesses of all sizes or for consumers with good credit to borrow.

Those are the priorities being supported by the business community -- which is keen to avoid more regulation.

In the rough and tumble world of Texan politics there is a saying, which was coined by radio commentator and former populist politician, Jim Hightower, that the only thing you will find in the middle of the road are yellow stripes and dead armadillos -- the slow-moving creatures that often get run over by cars on the vast open highways.

In the Lone Star state they like people to take a stand on the left or the right. However, for this G20 Summit straddling the fence in the middle might not be a bad idea.

These leaders don’t need to recreate the wheel, but they do need to make sure there are not big boulders in the path towards recovery.

What does this mean in reality? The G20 should be able to leave the summit table with the following:

- An agreement to continue stimulus plans that complement a path to growth
- A final finish date for the Doha Trade Round -- to avoid any worries over protectionist policies are creeping into legislation
- A real structure and timeline to make the IMF a global regulator to create like-for-like standards for banks
-A concrete strategy to identify and set aside the toxic assets that are holding back lending and therefore growth
- Equal voting rights for all members of the G20 from Brasilia to Beijing and Ankara and Riyadh in between

If you walk the streets of any financial center right now, from businessmen to consumers you hear the same refrain: “When do you think this credit crisis end?”

That is the multi-million dollar question that the G20 can help answer.


Horrific Traffic
Our television production team entered the three room apartment in Manama, Bahrain with plans to see an empty shelter for the victims of labor abuse. What we found was quite different and heart wrenching.

Forty year old Suryavathi Rao fled the home of her employer that morning shoeless with only a nightgown and bible to her name. The years of domestic labor have taken their toll. She could easily pass for 60 if not a few years older. After working 16 hours a day, seven days a week for a year and a half, Suryavathi could not take it anymore. She said through a translator that her meagre salary of $108 a month had not been paid for six months. She complained about not being fed meals and surviving on the generosity of her neighbor another domestic worker who pulled together leftovers to get by.

Suryavathi could not get through three sentences without breaking into tears. As a result of her fleeing for protection, she has become a runaway worker with no rights. Her employer holds her passport. The best she can hope for is to get the passport back and hope that the shelter can give her enough money to buy a ticket and fly home to Southern India. It is not that simple of course, since back home Suryavathi fears she won’t be welcomed back due to her “failure” to send back money and keep a job.

This is the life of a forced labourer and the complex world of human trafficking. Technically, Suryavathi was not trafficked. She had a sponsor agency that she paid $1100 to back in India and is still charging here 5 percent a month interest on the balance. But she certainly did not expect slave like conditions when she arrived.

It is hard to think of a worst crime then the trafficking of humans. I was introduced to the cause by the First Lady of Egypt Suzanne Mubarak three years ago who heard of cases of child kidnapping, the trading of human organs and the sex trade involving teenage women.

In an exclusive interview this week in Bahrain, the First Lady explained that the more she learned, the more involved she became, “Whether it is regarded as a country of origin, transit or destination, it exists in all societies. Personally I came to realise what an insidious crime this was and how it was just really built on profit and on not only low morals, but no morals at all.”

Human trafficking and forced labor are big business. According to the United Nations International Labor Organization (ILO) 12.3 million people are a product of forced labor. Of that total, more than 2.4 million have been trafficked across borders. Total profits from this illicit trade add up to $36 billion a year according to the U.N., ranking third behind the illegal drugs and arms trade.

In large part as a result of the End Human Trafficking Now campaign of Mrs. Mubarak the last few years, more than 150 countries have signed onto protocols to combat the crime. Legislation has been passed; the next big hurdle according to the First Lady is enforcement.

“Oh definitely we have a long, long way to go yet, because the traffickers are not caught. This is an organised crime that is working you know, underground”. When reminded that for every 800 people trafficked only one is prosecuted, she admits “We need still to amend our laws; we need to draft new anti-trafficking laws.”

Having chaired two panels at this week’s “Human Trafficking at the Crossroads” conference in Manama, the other stark reality is the challenge of changing not only the laws on the books, but the mindset of the people who exploit innocent victims, either those who employ them or the middlemen who trade them.

In the Gulf of Arabia, the biggest problem according to labor officials is the treatment of domestic and construction workers. 250,000 have officially reported cases of abuse according to U.N. officials.

The fact that Bahrain hosted this conference speaks volumes of getting the subject off the taboo list. Government officials want to open up to discuss why things need to change. A year ago, the Crown Prince of Bahrain Shaikh Salman Bin Hamad Bin Isa Al-Khalifa created the Labor Market Regulatory Authority (LMRA) to consolidate a handful of ministries, get every migrant worker registered and give them the freedom to move from one employer to another if ill treated.

The effort, structure and technology are impressive – Bahraini officials admit the growing pains are daunting.

"It makes me very uncomfortable,” said the American educated Crown Prince during an interview last summer, “And what I think is the greatest protection for workers is the elimination of the sponsorship system. Sponsorship in this region is similar to servitude in the United States 400 years ago."

What is promising is that people at the very top and bottom of the “supply chain” of human trafficking are out fighting the cause. Mrs. Mubarak has targeted top business leaders to sign on the dotted line to insure that no one in their operations or within their supplier community are employing trafficked laborers. 12,000 companies have signed on in three short years.

The First Lady’s strategy was to make inroads as quick as possible. “Rather than repeating what has been done, that we should start working from the top, working with the business community, who have the resources, who have the expertise, who have the technical capabilities of helping us to do something about this scourge of human trafficking.”

There is a concern that during this global downturn the treatment of workers will become less of a priority. Right now, companies are concerned about delivering profits, but hopefully doing the “right thing” does not fall by the wayside.

In the trenches you find real heroes providing advice, food and shelter to the victims. The Migrant Workers Protection Society in Bahrain is under funded and under staffed, but three women of Indian origin have served as pillars of the operation have looked after 380 people who were desperate for help. It seems they don’t have enough fingers to plug all the leaks or loopholes while the system gets built in Bahrain.

Meanwhile, more than 200 participants at conference are looking for new strategies like a global phone hotline to make sure victims do not fall through the cracks. They are also trying to coordinate legislation and police investigations to put more perpetrators behind bars.

It is no small challenge when governments are working against organized crime rings, which are not only making big money, but to date have paid a very small price for their actions.

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John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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