International commerce risks being strangled by a gradual buildup of restrictions that could undermine policies to revive the world economy, the head of the World Trade Organization (WTO) said March 26.
WTO Director General Pascal Lamy said there were no signs of an imminent descent into intense tit-for-tat protectionism.
“The danger today is of an incremental buildup of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally,” Lamy said.
Many WTO members at the start of the year appeared to have kept pressures to take protectionist actions under control, he said in a report circulated to members, a copy of which was obtained by Reuters.
“Since then, there has been significant slippage,” he said.
The report, issued a week before the G20 meeting in London, highlights one of the key issues for the summit – how to prevent job-shielding trade restrictions that could turn the recession into a long Depression leading to unrest and even war, as happened in the 1930s.
A previous summit of the Group of 20 leading nations in November called on members not to raise barriers to trade, but the dozens of measures imposed since September and cited in Lamy’s report show clearly how that is being ignored.
The World Bank said last week that 17 G20 members and other countries had implemented 47 measures restricting trade since the November summit.
Lamy said it was impossible to predict how long or deep the world recession would be, but it was essential to avoid policies that hurt trade, which the WTO now forecasts will contract nine per cent this year, the biggest decline in over 60 years.
Some measures taken by trading countries such as stimulus packages would help restore growth globally, but many contained elements such as state aids, subsidies and “buy local” conditions that favoured domestic goods over imports, he said.
For instance his report lists 17 measures by 12 countries to help their troubled auto sectors.
Lamy noted that propping up uncompetitive industries and delaying necessary restructuring could lead to new protectionist pressures to keep those businesses alive, as happened in the 1970s and 1980s.
The WTO had detected an increase in import duties, non-tariff barriers such as restrictive standards and greater use of trade remedies tackling imports seen as unfair.
The downward trend since 2001 in anti-dumping investigations – probes into goods that are sold for less than their price in the exporting market – has come to an end, Lamy noted.
Anti-dumping investigations rose 27 per cent to 207 in 2008, but were still below the 2001 peak of 366, with a further 29 new investigations estimated so far this year, he said.
The G20 summit in November also urged the conclusion of the WTO’s Doha round to free up world trade, a call likely to be repeated next week.
Lamy said Doha proposals on the table for agriculture and industrial goods were the equivalent of a stimulus package for consumers of over $150 billion.
Other elements of the Doha round, such as trade in services like telecoms and finance, could more than double that, he said.
Another factor undermining trade is the drying up of trade finance following the credit crunch.
Lamy said the gap, or unmet demand for trade finance, in developing countries was $100 billion to $300 billion and the situation had continued to deteriorate in the first quarter of this year.
The G20 is likely to discuss measures to revive trade finance through funding from national export-credit agencies and bodies like the World Bank and International Monetary Fund.
The report also lists 25 measures by 15 WTO members (counting the European Union as one member) to facilitate trade.
It cites examples of resistance to protectionism, such as Brazilian President Luiz Inacio Lula da Silva’s reversal of a ministerial decision to expand import licensing requirements.
The report lists 71 measures by 23 members since September to restrict imports or promote exports, and 25 measures by 12 countries to ease trade, plus a further 18 unverified measures.
It also lists 44 industrial and national stimulus packages by 23 countries, and a further 10 unverified stimulus packages, and 63 banking and financial bailout packages by 30 countries.