IMF chief urges revisions to rules to ease trade tensions

IMF managing director Christine Lagarde said that escalating trade disputes hit "innocent bystanders". PHOTO: AFP

International Monetary Fund (IMF) managing director Christine Lagarde has urged countries to revise rules in a bid to de-escalate trade tensions.

Her call came after the IMF projected that the world economy will expand by only 3.7 per cent this year, 0.2 percentage point below its forecast six months ago.

It cited risks anticipated earlier, particularly surging trade barriers, that are beginning to materialise.

Another risk also looms as United States President Donald Trump threatens to impose further tariffs on US$267 billion (S$368 billion) worth of Chinese exports.

Ms Lagarde said yesterday that escalating trade disputes hit "innocent bystanders" - a reference to countries that are not involved in the conflicts but are part of supply chains linked to these nations.

"My recommendation is very simple: de-escalate, fix the system and don't break it because all countries have had the benefit of that legal framework for many years, and it has served international trade rather well," Ms Lagarde said at a press conference during the IMF-World Bank meetings in Bali.

She suggested that negotiating some World Trade Organisation (WTO) rules - pertaining to state subsidies and measures to embrace competition to avoid market-dominant positions - must be at the centre of efforts to lessen these disputes.

Reducing agricultural subsidies has been one of the sticking points in talks to revise trade rules among the 164-member WTO for nearly two decades under the Doha Round. Developed economies have refused to lift agricultural subsidies as demanded by developing countries in exchange for a reduction of import duties on industrial goods.

WTO director-general Roberto Azevedo said in talks on Wednesday that major deals the body made in 2013, including a consensus to eliminate export subsidies in agriculture, made no real progress.

Last month, the trade governing body, which covers around 98 per cent of commerce worldwide, trimmed global trade growth to 3.9 per cent this year, from the 4.4 per cent it estimated in April.

World Bank Group president Jim Yong Kim told a separate briefing he was concerned that intensifying trade tensions have caused a slowdown in the world economy, and that they will have greater impact on developing economies.

He noted that trade has paved the way out of extreme poverty for millions of people.

"So, what we are doing right now is trying to understand exactly where countries sit in the global value chain," Dr Kim said.

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A version of this article appeared in the print edition of The Straits Times on October 12, 2018, with the headline IMF chief urges revisions to rules to ease trade tensions. Subscribe