G20 leaders have kickstarted stalling world trade with a substantial infusion of funds to finance export credits, but promises to agree a new Doha trade deal and battle protectionism remain vague.

A $1.1 trillion deal to combat the economic downturn agreed at Thursday's G20 summit in London includes a trade finance package to fund $250 billion of trade over the next two years.

Rising world trade since World War Two has lifted millions out of poverty and supply chains in the globalized world economy mean exporters rely on imports from maybe dozens of countries.

But trade has slumped in recent months, with Japan's exports halving in February from a year earlier. The World Trade Organization (WTO) predicts a nine percent drop globally this year, the first contraction in 25 years, reflecting both dwindling demand and the lack of credit to finance shipments.

The new resources made available for trade finance are clearly going to have an effect. It's an important step. This is something quite significant, said Fredrik Erixon, director of the European Center for International Political Economy (ECIPE), a Brussels think-tank.

But the promise to agree a deal in the WTO's long-running Doha deal -- a fixed feature in the communiques of all international gatherings -- was short on details.

The communique said a deal in the Doha talks, launched in late 2001 to help developing countries prosper through trade, could add at least $150 billion a year to the world economy. But it did not set a deadline for the urgently needed agreement.

DOHA DELAYS

Ministers from trading powers came close to a deal last July but the talks eventually foundered on differences between the United States and major emerging countries.

The United States wanted countries like China, India and Brazil to open their markets up more to American businesses, while India wanted to protect its poor farmers from a surge in imports and China was suspicious of calls to create duty-free zones in specific industrial sectors like chemicals.

Despite a G20 call last November to reach an outline Doha deal by the end of 2008, WTO Director-General Pascal Lamy felt the gaps were still too wide to call in ministers in December.

On Friday, Lamy told Reuters an outline deal on the core areas of agriculture and industrial goods could be done by the end of this year, and he could call in ministers for talks before or after the European summer break.

Such talks could take place at a summit of the G8 rich countries, to which emerging powers like Brazil, China and India have been invited, to be held in Italy in July, an EU diplomat said on Thursday. Chinese Commerce Minister Chen Deming said on Friday the Doha talks would resume in July.

Many developing countries fear the original purpose of the Doha round -- to remove distortions from the international trade system that hurt poor nations -- are being forgotten in the push to secure the greater market access for American businesses that will be needed to get a deal through the U.S. Congress.

What is important, however, is not the conclusion of just any Doha round, but rather a round that... explicitly prioritizes the needs of developing countries and addresses the imbalances already present in the rules of the global trading regime, Carolyn Deere, director of the trade project at Oxford University's global economic governance program, in a blog.

The lack of high-profile action on the Doha talks may belie the reality, however. Negotiators are meeting quietly to ascertain each other's limits on areas such as the sector proposals, which could prepare the way for a final push.

One effect of a new deal would be to eliminate the scope for countries to raise tariffs and other trade barriers while remaining within the letter of the law.

There still remain a great many holes in the existing trade agreements, and it would be quite possible for the rest of the world to take actions that are highly restrictive yet still WTO-compliant, Craig VanGrasstek of Harvard University's JFK School of Government said in a recent comment on the controversial U.S. Buy American provisions.

The G20 communique repeated a call from last November to its members not to raise trade barriers, extended this to the end of 2010 and called on the WTO among others to monitor compliance.

In fact November's call was quickly ignored by most G20 countries who blocked other countries' imports or favored their own exports at the expense of competitors.

The latest G20 statement speaks out against only measures that are not in line with WTO rules and promises to rectify any breaches, admitting that members are not even observing that.

The problem is that many countries, especially developing ones, apply tariffs that are much lower than their WTO commitments, giving them the scope to raise duties if they want.

If they had been really serious about blocking moves to protectionism we would have seen different language, said Erixon of ECIPE.

Erixon argues the risk of the creeping protectionism now underway is not a repeat of the all-out tit-for-tat trade wars that exacerbated the 1930s Great Depression, but a return to the 1970s, when rich countries used subsidies to protect inefficient industries from nimbler rivals.

(Editing by Jon Boyle)

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