The BRICS on Trade in Ufa: Mixed Signals

Only time will tell if the BRICS have revised their trade strategies in the wake of last week’s Ufa summit in Russia.

Summit declarations and published Action Plans aren’t always that revealing, a reality that applies as much as to other major summits—such as the G-7 and G-20—as it does to the BRICS’.

Still, how trade-related matters are framed can be interesting. Which dogs don’t bark can be telling as well.

Concerning beggar-thy-neighbour actions, it is telling that the first reference in the Leaders’ Declaration is to the negative “spillovers” created by the West’s unconventional monetary policies which the BRICS reckon operate through exchange rates and asset prices.

Given that the United States’ Federal Reserve Board has ended its programme of Quantitative Easing and is expected to start raising interest rates soon (a decidedly conventional monetary policy), the approach of the BRICS here is backward looking, not least since the US dollar has appreciated considerably over the past year.

Perhaps the target of the BRICS’ ire was the ongoing QE of the European Central Bank and the Bank of Japan?

The five leaders of BRICS met in Ufa, Russia last week [Xinhua]

Even so there is no consistent pattern of depreciation between the Euro and the Yen and the currencies of the BRICS during the past year. All in all, why give this legacy item such prominence?

Strong statements of support for the WTO and demands that signed free trade agreements align with the principles of the multilateral trading system have become another ritual of BRICS summits. The so-called mega-regional trade agreements being negotiated by the US, EU, and Japan are almost certainly the target here.

China, Russia, and South Africa are not involved in any of these negotiations and the Asian-based BRICS may be particularly concerned now that the US-led Trans-Pacific Partnership is likely to be concluded this year, setting what some want—and others fear will be—the template for trade deals in the decades to come.

Still, the approach taken by the BRICS here is far from aligned as Brazil has recently tried to reinvigorate talks on a sizeable cross-regional free trade agreement between the EU and Mercosur.

South Africa already has a trade deal with the EU. True, India is negotiating a FTA with the EU but there has been so little progress that she may feel a growing threat of isolation too.

Lastly, BRICS scepticism about mega-regional trade deals and fealty to the WTO’s non-discrimination principles are hard to square with reports emanating from Russia that the BRICS ministers are discussing the creation of a free trade “zone” between them.

It became clear that any such initiative is not for the near term, rather as a goal to be achieved over a five-year time horizon. Plus, given the questions about the willingness of some of the BRICS to tie their hands in binding accords, any free trade agreement between the BRICS is likely to be a paper tiger.

Resisting protectionism receives some billing in the Ufa summit-related documentation.

A particularly tough line was taken on protectionism by other countries. Maybe it is too much to expect open acknowledgements of BRICS protectionism.

Still, the G-20 has, from time to time, found artful ways to signal a balanced approach, thereby recognising backsliding towards protectionism by its members.

Given that the latest report of the Global Trade Alert, that I wrote and which was published last week, shows that the BRICS have implemented 1,450 trade distortions since November 2008, reining in BRICS protectionism would seem in order as well.

India and Russia’s protectionist records are particularly bad, each implementing around 450 beggar-thy-neighbour measures.

Moreover, given that the BRICS themselves are responsible for a third of the hits to BRICS commercial interests, greater emphasis on self-restraint would seem in order as well.

Yet, the criticism of “other’s” protectionism is well founded.

The Global Trade Alert’s report shows that 60% of trade distortions implemented during the crisis era harmed one or more of the BRICS.

One change from last year’s BRICS summit meetings is that the pass given to developing countries for protectionism has not been repeated.

This is wise given that four-fifths of the foreign steps taken that harm BRICS commercial interests have been implemented by developing countries.

Given how often the BRICS are harmed by foreign protectionism—and the number of hits during the crisis era ranges from 649 for South Africa to 2,153 hits on Chinese interests—a sustained global campaign to discourage, publicise, and rollback protectionism ought to be strongly in the interests of the largest emerging powers.

Given the evident limitations in how the WTO monitors protectionism, perhaps it is only now dawning on the BRICS how often their exporters, investors, and nationals working aboard are being harmed by foreign beggar-thy-neighbour acts and that more can be expected in the future.

Overall, the impression given by the Ufa summit statements on international commerce is mixed.

The reflex to criticise the industrialised nations remains strong as do promises to strengthen intra-BRICS trade.

There may have been some progress on recognising the scale of protectionism affecting the BRICS and the wide range of nations responsible for the resulting harm.

Still, the BRICS have a long way to go to restrain their own protectionism and to campaign aggressively against such trade distortions at the global level.