Bridges Weekly Trade News Digest • Volume 13 • Number 25 • 8th July 2009

WTO Finds ‘Further Slippage’ Toward Protectionism, Predicts Rise in Anti-Dumping Cases

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The world economy has witnessed ‘further slippage’ toward protectionism, a new report from WTO Director-General Pascal Lamy concluded last week, but the use of ‘high-intensity’ trade-restricting measures remains “contained overall, albeit with difficulties.” The report, the third in a series of periodic analyses of WTO Members’ trade policies, predicted that anti-dumping cases could increase amid the ongoing economic turmoil, and warned that ‘buy local’ provisions in national stimulus plans could distort trade.

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 the Second World War. 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 gotten a modest boost from institutions like 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.

This economic news comes in the context of a continuing, though gradual, shift towards protectionist measures among many WTO Members, the WTO said. The report, which covers the period from 1 March to 19 June, found that the organisation’s 153 Member governments had notified a total of 119 new trade measures, 83 of which it the secretariat classified as trade restricting. But neither of those figures includes trade policies enacted in response to the outbreak of the H1N1 ‘swine flu’ in April. Amid the health scare, more than three dozen countries imposed trade bans against pigs and pork products from Canada, Mexico, the United States, and other exporters, despite statements from several intergovernmental organisations that such embargoes were unjustified (see Bridges Weekly, 1 July 2009, http://ictsd.net/i/news/bridgesweekly/49943/).

Despite the continued ‘slippage’ toward protectionism, there has been some progress on trade opening in the past three months. The report recorded an upswing in new trade-promoting policies as compared with the previous review, which was released in late March (see Bridges Weekly, 1 April 2009, http://ictsd.net/i/news/bridgesweekly/44532/). Over the past three months, 13 countries, including Australia, China, Ecuador, India and Saudi Arabia, either reduced or removed trade-restricting measures during the period under review.

Anti-dumping cases could grow

Perhaps unsurprisingly, the report predicted that the WTO will see an upswing in Members’ use of ‘trade remedies’, policy tools that allow countries to take remedial action against imports that are causing material injury to a domestic industry. Such measures include anti-dumping actions, countervailing duties, and safeguards.

On anti-dumping, the report cited evidence of a correlation between a handful of macroeconomic indicators and the pace with which countries investigate each others’ export pricing policies. ‘Dumping,’ in trade parlance, refers to the practice of exporting goods at prices lower than they command in their home market. The WTO Agreement on Anti-Dumping allows Members to place retaliatory tariffs on dumped goods, so long as they can prove that dumping is indeed taking place and that it is injuring the competing domestic industry.

As the global business cycle reaches a low point, anti-dumping cases tend to peak, the report found, pointing to economic evidence dating back to 1979. Metals, and particularly steel products, will likely be frequent targets of future anti-dumping investigations, the report concluded, assuming historic trends hold true in the current crisis.

Safeguard actions and countervailing duties have also grown in popularity this year, the WTO said, but use of the measures remains below previous peaks.

WTO warns against ‘buy local’ provisions

Member governments have announced a number of new stimulus measures and sector-specific support programmes since March, policies that the WTO acknowledged could be critical to stimulating the consumer demand needed to propel economic recovery. But the secretariat warned that such measures, which it said are often obscured behind multiple layers of government and massive amounts of bureaucratic red tape, have the potential to “distort markets and competition,” and should be implemented with caution.

The report warned specifically against ‘buy local’ provisions that may be written into government stimulus packages, on the grounds that such measures skew demand and hinder open competition. The secretariat also said that sector-specific support programmes should be phased out as soon as possible, as such heavy subsidies that unfairly undercut producers whose governments cannot afford to provide such high levels of state support.

“The longer the subsidies remain in place, the more they will distort market-based production and investment decisions globally, the greater will become the threat of chronic trade distortions developing, and the more difficult it will become to correct those distortions,” the report said.

The report noted that the leaders of the G20 group of major world economies had vowed to refrain from imposing trade-restricting measures in the face of the economic crisis, and urged them to follow through on that pledge. It called on the leaders to develop ‘exit strategies’ as soon as possible “to allow world markets to return to normal.”

“To date, the WTO secretariat has not been informed by any G20 member that it has rectified any measure,” the report said.

The report is part of a process of feedback intended to keep WTO Members honest as they grapple with the havoc that the global crisis has wrecked on their domestic economies. The full text of the 77-page document will be officially unveiled to WTO Members at a meeting of the WTO’s Trade Policy Review Body on 13 July. It will be posted on the WTO website shortly thereafter.

ICTSD reporting.