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Compromises needed to save global economy

By Liu Junhong (China Daily)
Updated: 2009-04-02 07:49

As the second G20 summit kicks off in London, the world's focus is on whether the meeting can propel the reform of the International Monetary Fund and trigger global economic recovery.

Of course, European countries and the US hold different views towards policies on international finance and monetary reform due to protection of their respective interests. Therefore, it's too optimistic to say that the two sides can join hands in adjusting global policies simultaneously.

Protectionism has swept across the world in the face of the financial crisis.

The US government firstly adopted the "buy America" policy, taking the lead to bleach its own pledge of opposing trade protection.

According to the latest report of the World Bank, 17 of the G20 members have launched their own measures of trade protection.

It shows that large countries have conflicting interests, which will hamper international monetary reform and even unbalance the international order.

So, the upcoming summit in London will have to answer three questions dealing with bad loans, reshuffling the international financial system, and fighting against trade protectionism.

First, the summit should find ways to deal with bad loans and financial assets, which will hinder the recovery of the international financial system. Therefore, the urgent issue faced by the G20 summit is to coordinate policies of different countries and push developed countries to strip off and digest non-performing loans and assets to prevent the crisis from further spreading and deteriorating.

Second, reform of the international financial system is not only a long-term strategic issue, but also a pressing one which will determine the direction of the world economy.

So, the London summit should contribute to the work of clarifying the general requirements of reform and ensuring that it is fair, open, and efficient.

Third, the summit will have to deal with the resurgence of trade protectionism. The US passed an act including a "buy American" clause and started to violate the North America Free Trade Agreement, causing risks for the world economy.

The European Union expanded its traditional standards to add indexes like climate and environmental protection as well as waste recovery.

In the meantime, advanced countries have abused the litigation procedures of the World Trade Organization to adopt trade protectionism in the disguise of anti-monopoly and anti-dumping; they also elbowed out emerging countries under the pretext of copyright protection to oppose industrial development.

In the face of the crisis, trade protectionism will naturally lead to the inefficient allocation of global resources, rupture of world industrial chains, and even trigger international political contradictions and ethnic conflicts.

Thus, the G20 summit, as the political arena for mapping out the future international order, should make the best of this opportunity to actively oppose trade protectionism and stick to WTO tenets.

Moreover, it should coordinate policies and strategies among different powers in the hope of building a harmonious and orderly trade and investment system to save the world economy.

The author is a researcher with the China Institutes of Contemporary International Relations.

(China Daily 04/02/2009 page9)