Service on WTO and Trade Issues (Feb09/11)
over protectionism, North's stimulus packages
These concerns were expressed at an informal meeting of the Trade Policy Review Body of the WTO, which was convened to discuss WTO Director-General Pascal Lamy's report (JOB09/2) on recent trade developments associated with the financial crisis.
The report, issued under the Director-General's own responsibility, highlighted trade-related developments that have occurred since the third quarter of 2008 as a result of, or in the context of, the financial crisis and its impact on the global economy. (see SUNS #6627 dated 28 January 2008).
One developing-country participant at the informal meeting told SUNS that some countries criticized the Director-General's report for being based on media reports. Many developing countries also criticized the financial aid packages provided by developed countries, and said that these need to be analysed in the WTO to see if they are consistent with the rules.
trade diplomat also said that countries such as
participant said that countries such as
According to trade officials, there were two objectives for the informal meeting: one, for Members to have a first discussion among themselves on what has happened in light of the information that is available; second, to provide the WTO Secretariat with guidance on how they want the monitoring exercise to proceed.
Trade officials noted that the WTO does not have the information so far to really analyse the financial bailouts or the state aids (provided by the developed countries) and come to any kind of conclusion on whether and how they are likely to restrict or distort trade or competition. A lot of these packages are still being put together.
They added however that there was a lot of concern amongst developing country Members about what is in these packages and how much they are likely to impact on trade. Large-scale subsidies to individual industries and sectors can affect trade very seriously indeed, said trade officials.
On trade measures -- tariffs, non-tariff barriers, anti-dumping measures etc -- there has been very limited evidence so far of any serious resort to more restrictive and distorting measures. Trade officials said that while there was an appreciation that so far Members don't appear to be deep in the mire, everybody expects things to get worse before they get better.
Trade officials noted that one measure that was most remarked on at the informal meeting was the re-introduction of export subsidies by the EU on certain dairy products.
Trade officials were of the view that there is a mandate for the exercise, citing paragraph D of the Trade Policy Review Mechanism (on reporting regularly to the TPRB). They acknowledged however that some nervousness has been expressed on the terms of reference and the process, but that this will be sorted out by consulting with the countries concerned. There has been nervousness that the monitoring exercise could turn into an IMF-type policing of the system.
officials referred to
Trade officials referred to a continuation of the monitoring exercise and that the WTO will be expecting a much better flow of information from governments on measures that they are taking. There is need for more accurate and comprehensive information on trade policies or trade-related policies.
Trade officials added that the Director-General has been given the green light to produce a revised report that is to be circulated around mid-March.
With respect to the conclusions by the Director-General, trade officials said that Lamy was impressed by how serious the debate had been, and that Members have encouraged him to continue. Many or all said that this is a first step and that this needs to be fine-tuned and perfected.
Lamy noted that there were some procedural concerns expressed and consultations will be held to work that out.
On the general question of the WTO's monitoring role, this will be taken up in a more systemic sense in the context of discussion on the orientation of where the WTO is going. All measures should be covered -- whether they have a negative or positive effect on trade. There is need for a holistic view, especially the impact on developing countries.
speaking to journalists outside the meeting room, Ambassador Ujal Singh
He was also of the view that the fiscal stimulus packages (of the developed countries) would have a bigger impact than tariffs. "For instance, what we believe is that something like $3 trillion of various types of packages have already been announced... that means that this amount of capital is being sucked out of the global system and therefore the debt markets are now very tight for developing country debt, and there are estimates which suggest that the private flows of capital to developing countries, which were about $1 trillion in 2007, will be maybe one-third of that figure this year," the Indian envoy said.
Roberto Azevedo of
He also said that protectionism is not only about raising tariffs and controlling imports. It's also about subsidies and stimulus packages which could have a tremendous effect on trade, and which are available mostly to countries that have the resources to apply them. Developing countries do not have the means to adopt these kinds of measures. All they have is tariffs.
For developing countries, the least expensive way of protectionism is raising tariffs, and they have room for raising tariffs. The developed countries cannot raise tariffs because they apply tariffs at the level of bound rates already, said the Brazilian envoy, adding that a lot of their measures are directed at subsidies and stimulus packages. Essentially, they "are increasing the capacity of their industry to compete in a way that developing countries cannot."
Angelica Navarro of
(Paragraph "g" on overview of developments in the international trading environment states: "An annual overview of developments in the international trading environment which are having an impact on the multilateral trading system shall also be undertaken by the TPRB. The overview is to be assisted by an annual report by the Director-General setting out major activities of the WTO and highlighting significant policy issues affecting the trading system.)
She noted that the Director-General has not had agreement from all Members to do the report. She said that she had asked for a multilateral discussion before the report so that the terms of reference can be set. "We are not against having a report. We think it is very important... but the main problem is that we wanted to make it with all the Members."
On the terms of reference, she said that what needs to be included is firstly, the purpose or main objective, secondly, how long will this mandate be for the Director-General, thirdly, the periodicity of the report, and fourthly, there should be a different treatment of the developed countries -- which are the origin of and responsible for the crisis -- and the developing countries, which are the victims of the decisions of the developed countries.
With respect to the content of the Director-General's report, Ambassador Navarro said that one main point is that it is not clear where the causes of the crisis are, and it has to be put in black-and-white that it has originated in the United States and in developed countries.
The first thing is to identify the clear cause of the crisis, and secondly, to analyse the bailout packages of the developed countries -- between $3-4 trillion -- to see if they are compatible or not with WTO rules. Also, what kind of trade distortions they are causing and what is meant by subsidies, as well as what is the cost to developing countries.
This has not been answered by the current report, said the Bolivian envoy, adding that there is also need for balance in the report, which is not being seen.
In his introductory remarks at the informal meeting, Director-General Lamy said that "I believe that this is an important initiative in the TPRB. It reflects the responsibility of the WTO to play an active and constructive role in helping to manage the current, very difficult, global economic situation and to promote an early end to the recession and the restoration of strong, sustainable growth in world trade."
The speed with which the economic situation deteriorated since the financial crisis in September last year has meant that there has been little time to carry out the extensive consultations with Members that typically precede an initiative of this kind in the WTO.
Lamy said that he took good note of the concerns that some Members expressed in the General Council last week about the mandate and the purpose of this monitoring exercise. "Let me reassure you that the seeds for this initiative were not sown in Davos, nor in the G-20. This is a home-grown initiative that started in the WTO and that, I believe, should continue in the WTO as long as the global economic situation justifies it."
"I do not believe there can be any doubt that the WTO membership has a responsibility to monitor policy developments that are having an impact on international trade and on the multilateral trading system, nor that all WTO Members have a strong interest in doing so."
"Switching on the radar to provide ourselves with as much information and intelligence as possible about trade-related policy developments around the world is crucial in current economic circumstances, where trade growth has already stalled globally," he said.
"The seriousness of the global economic situation demands that we make a collective effort to improve the prospects for an early recovery. Completing the DDA is by far our most important contribution in that respect. It is also the surest way we have of guarding our individual trade interests and the multilateral trading system against the threat of an outbreak of protectionism."
"In the meantime, we can profitably monitor trade and trade-related developments and use the multiple consultation provisions available to us in the WTO, informal as well as formal, to shape a collective response to problems as they arise - for example, correcting shortages of trade finance - and help to make sure that our markets remain open for business and our trade policies are applied transparently," said Lamy, adding that his report is intended to be a contribution to that exercise. He stressed that it must be viewed as work in progress.
Lamy reiterated the conclusion that he had drawn in his report that, up to now, there has been only limited evidence of increases in trade restricting or trade distorting measures that have been taken in the context of the financial and economic crises.
said that the very welcome interventions taken recently by President
Luiz Inacio Lula da Silva of
"I must say, however, that my sixth sense is that we are still at only an early stage in the policy response around the world to the economic recession, and I believe that we must remain vigilant."
a statement at the meeting,
drying up of liquidity has specially affected the businesses of SMEs,
forcing many of them to close down. Difficulties in obtaining trade
finance and the increase in risk premia have further added to their
problems. Reduced capital flows into developing countries will have
an obvious impact on their economic growth.
These trends have the potential to derail very substantially, the growth prospects of developing countries and to set back substantially the achievement of the Millennium Development Goals.
Clearly, the WTO has to play an effective role in combating protectionism. But for that to happen, there must be conceptual clarity about the nature of the beast. If the TPRB is to play a useful role in building common understanding on this issue, it would be useful to recall the objectives laid down in Annex 3 of the Marrakesh Agreement, said India.
have to be clear in our minds whether we are approaching the issue of
protectionism from the perspective of WTO consistency of any measure
or from the larger perspective of its impact on global trade. We cannot
have it both ways," said
"As far as WTO consistency is concerned, WTO consistent packages can be designed to keep out foreign workers or foreign products. But others can play the same game. The dangerous cocktail of financial protectionism and economic nationalism can be extremely insidious in its effect and certainly more dangerous than any other form of protectionism. The twin tracks of Keynes at home and Adam Smith and Hayek for the rest of the world, are clearly unsustainable."
possibility of some countries increasing their tariffs to bound levels
has been hyped up inordinately. The main threat to global trade does
not emerge from this," said
from whatever evidence is available, developing countries who mostly
have the water in their tariffs, have been exercising restraint.
"We obviously would not like to criticize such interventions because Governments will do what they have to do to salvage their economies. However, such unprecedented interventions in debt markets can have a very serious impact on capital flows to developing countries."
the huge bailouts of banks and insurance firms by the
example, many states in the
issues need to be clarified and it is necessary that they are discussed
by the Committee on Trade in Financial Services (CTFS) in greater detail,
On the Doha Round of trade negotiations, Brazil said that locking in the progress made over the last seven years of the negotiations is a key ingredient to avoid the clear protectionist trend found in the Director-General's report and its inevitable domino effect that will be extremely hard to reverse later.
its statement, the