Bridges Weekly Trade News Digest • Volume 13 • Number 14 • 22nd April 2009
Lamy Urges Countries to ‘Remain Vigilant’ against Protectionism
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WTO delegates meeting in Geneva last week agreed that, despite warnings to the contrary, the world economy has not fallen into an all-out tit-for-tat protectionist battle since onset of the global financial crisis in September. But WTO Director-General Pascal Lamy told the trade officials that there has been a slight up-tick in new trade-restricting measures in recent months, and urged them to “remain vigilant” in resisting pressures to close their borders to trade.
World trade flows have dropped precipitously since the economic turmoil struck last year. The WTO predicted in March that world trade flows will slide by 9 percent this year, the steepest drop in 60 years (see Bridges Weekly, 25 March 2009).
Many observers have warned that a slide toward protectionism – trade-restricting policies intended to shield domestic producers from the brunt of the crisis – would exacerbate and prolong the downturn by slowing the flow of international commerce, much as the Smoot-Hawley tariffs imposed by the US in the 1930s helped transform what began as a recession into the deepest economic depression of the 20th century.
But so far, at least, the news these days is somewhat brighter.
“There is no indication of an imminent descent into high intensity protectionism, involving widespread resort to trade restriction and retaliation,” Lamy told WTO delegates at the 14 April meeting. “The multilateral trade rules under the WTO continue to provide a strong defence, and a unique insurance policy, against that happening.”
“We should nevertheless remain vigilant and avoid nationalistic responses to the crisis, which will just shift problems to neighbours and risk them bouncing back,” he warned.
The director general had called the officials together to discuss a report on WTO Members’ protectionist policies that his office released on 26 March (see Bridges Weekly, 1 April 2009). The report, the second in a series of official updates on WTO Members’ new trade-restricting policies, concluded that there had been “significant slippage” toward protectionism. The first such report, released in January, found “only limited evidence” of moves to restrict trade (see Bridges Weekly, 28 January 2009).
US disputes severity of ‘slippage’
The director general’s characterisation of the status quo was not universally well received; delegates at the meeting got to witness some semantic quibbling over the wording in the report.
“We understand the danger of an incremental build-up of restrictions but do not think that the facts bear out the suggestion in the introduction of the report that ‘there has been significant slippage’ since the beginning of the year,” said Peter Allgeier, the US ambassador to the WTO, adding that he thought the phrase ‘some slippage’ was more appropriate.
“Overall, in the face of strong pressures in many capitals, major protectionist measures have been avoided,” he added.
The Indian ambassador, Ujal Singh Bhatia, also struck a moderating tone. “Doomsday predictions of a return to the Smoot-Hawley era are out of place,” he said, noting that domestic pressures toward protectionism would be offset by the voices of the many people who have benefited from globalistation.
Hong Kong tables ‘standstill’ proposal
Upping the ante in the meeting, the Hong Kong delegation proposed a temporary freeze in all new trade-restricting measures. Under this so-called ‘standstill initiative’, WTO Members would voluntarily commit to “refrain, for a period of time” from imposing measures that would restrict or distort trade. The standstill commitments would be in addition to Members’ current WTO obligations, the Hong Kong delegate said.
Many WTO Members maintain tariff and subsidy rates well below the ceilings set by existing trade agreements. As such, in many cases countries can raise barriers to trade without breaching world trade law. But the ‘standstill’ initiative, which Hong Kong claimed had received the backing of several other delegations, would seek to prevent all increases in trade barriers, legal or not.
Aim of monitoring reaffirmed
In his address to delegates, Lamy explained that close monitoring of countries’ new trade policies was critical to getting the global economy back on track. Such exercises increase transparency, he said, putting government actions under greater scrutiny and thus pressuring them to resist protectionism. He noted that delegations had been largely cooperative in the information-gathering process.
The 30 delegations that made statements at the meeting largely agreed that such public scrutiny was a critical safeguard against protectionism. “The importance of great vigilance in monitoring the situation is obvious,” US Ambassador Allgeier said.
The WTO’s next protectionism report will be released in mid-June, Lamy said.
ICTSD reporting.
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what are responses from other delegations to the Hong Kong standstill proposal?