3. Protectionism Is Growing, World Trade to Slow Further

7 September 2009

The third WTO report on trade-related measures taken by Members in response to the economic crisis found a growing trend toward protectionism and predicted that the volume of global exports and imports would decline by 10 percent in 2009.

"In the past three months there has been further slippage towards more trade restricting and distorting policies, but resort to high intensity protectionist measures has been contained overall, albeit with difficulties," the report noted. Between 1 March and 19 June, a total of 119 new trade measures were notified to the WTO, with trade-restrictive or -distorting measures outpacing trade-liberalising action by a factor of two.

Import Measures

Anti-dumping and safeguard investigations are up, as are new tariffs and non-tariff measures, the report said. The sectors most affected include agriculture, and dairy in particular, iron and steel, motor vehicles and parts, chemicals and plastics, as well as textiles and clothing.

Some of the measures have resulted in considerable trade friction. For instance, China has complained loudly against India's 30-percent safeguard duty on Chinese aluminium, and  threatened to retaliate by banning Indian products after the latter prolonged its import prohibition on Chinese dairy products. Brazil also intends to retaliate in kind, and may even take fellow Mercosur member Argentina to WTO dispute settlement, unless Buenos Aires speeds up the issuance of import licences. Ecuador agreed to gradually withdraw safeguard duties on nearly 1,400 products from Colombia after the Andean Community Nations instructed it to do so.

Subsidies & Buy Local Clauses

The impacts of various stimulus packages that distort competition through subsidisation or ‘buy national' clauses continue to be difficult to monitor, due to insufficient data, the report said. A number countries, including China, have included buy/invest/lend/hire local provisions in their stimulus packages (see page 12). The secretariat also urged countries to phase out sector-specific support programmes as soon as possible because the heavy subsidies  they provide unfairly undercut producers whose governments cannot afford to  match such high levels of state support.

Unlike the ‘buy local' provisions that are unlikely to violate the letter of WTO rules, sector-specific support, such as that lavished on the financial and automobile industries, may well fall foul of the Agreement on Subsidies and Countervailing Measures. Other widely decried protectionist actions include the resumption and extension of export subsidies for dairy products by the EU, Switzerland and the US (Bridges Year 13 No.2 page 6).

According to the report, "there is no general indication yet of governments unwinding or removing the measures that were taken early on in the crisis."

G-20 Urged to Consider Exit Strategies

When the leaders of world's 20 largest economies (G-20) met in London in April, they committed to "refrain from raising new barriers to investment or to trade in goods and services, imposing new restrictions, or implementing WTO inconsistent measures to stimulate exports" until the end of 2010, and to "rectify promptly any such measure." They also promised to "minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector," and requested the WTO and other international bodies to monitor and report publicly on the adherence of G-20 members to their undertakings on a quarterly basis.

"To date, the WTO secretariat has not been informed by any G-20 member that it has rectified any measure," the latest report stated. It would an ‘important consideration' for the G-20 in particular "to design and announce as soon as possible an exit strategy from this component (i.e. sector-specific support) of their crisis measures that will allow world markets to return to normal again." Peter Allgeier, then US Ambassador to the WTO, took exception to this recommendation. "We would like to caution against taking positions on developments in those aspects of the financial sector that are outside the WTO's competency, such as the speed with which countries should remove crisis measure," he declared.

Overall Economic Picture Remains Bleak, Particularly for Poorest

Although the global economy has shown some recent signs of recovery, the situation remains ‘fragile', the report said. The organisation revised its earlier forecast of a 9-percent decline in global trade in 2009, saying that it now expects the volume of cross-border commerce to plunge 10-percent this year, the biggest drop since World War II. Exports from developed countries will lead the way with a fall of roughly 14 percent, the report predicted, while developing country exports will slide by 7 percent.

Despite the grim outlook, there are some bright spots in global economy, the WTO said. Services trade appears to have weathered the storm better than trade in goods. Trade finance - loans and other forms of credit - has received a modest boost from institutions such as the World Bank, export credit agencies, and some national governments and central banks. But even with that support, low-income countries that lack strong economic and social safety nets ‘remain vulnerable' to future drop-offs in trade finance.

The situation of least-developed countries is particularly fragile. According to the African Development Bank, the continent's per capita income will fall in 2009 for the first time in 15 years. LDCs and other commodity-exporting developing countries are heavily affected by declining demand and prices. The Economist Intelligence Unit predicts a nearly 50-percent drop in the price of metals other than gold and silver, and rubber prices are set to decline almost as much. Tourism revenue is also down, compounding the economic woes of regions such as the Caribbean. Many developing countries are also suffering from diminished remittances from workers abroad, as well as a marked decrease in foreign direct investment in sectors such as mining, automobiles and construction.

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