TWN Info Service on WTO and Trade Issues (July09/18)
22 July 2009
Third World Network

TPRB discusses Lamy's third report on trade protectionism
Published in SUNS #6741dated 15 July 2009

Geneva, 14 Jul (Kanaga Raja) -- The Trade Policy Review Body (TPRB) of the World Trade Organization (WTO) on Monday discussed the third report of WTO Director-General Pascal Lamy on recent trade and trade-related developments associated with the financial and economic crisis.

The Director-General had issued his third report on the financial and economic crisis and trade-related developments on 1 July.

In his report, the WTO chief had said that in the past three months (the period from 1 March to 19 June 2009), 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 (see SUNS #6733 dated 3 July 2009).

According to trade officials, most speakers at the informal meeting of the TPRB on Monday welcomed the Director-General's third report. There were also a lot of ideas voiced for improving the report. Some members also clarified their trade measures at the meeting.

However, trade officials said, Bolivia said that it does not acknowledge any mandate for this exercise.

In his introductory remarks at the informal TPRB meeting, Lamy said that since members last met in the TPRB on 14 April, the world economy remains fragile and the economic outlook is still uncertain.

"There have been a few encouraging signs recently of better-than-expected performance here and there. Some are interpreting this as an indication that we may be turning the corner with the prospect of a return to previous patterns of economic growth."

"I would caution against excessive optimism," said Lamy. Although financial markets are showing signs of stabilizing, the crisis is far from over, in particular in many developing countries that are only now starting to feel its full force on their trade and economic growth. The collapse of aggregate demand is still working its way through the global economy while unemployment continues to increase.

"We should not forget that this crisis is unprecedented in its deepness, wideness and global impact. We must remain vigilant and act collectively to send the right signals and establish the appropriate environment conducive to a sustainable recovery for all."

The WTO chief said that this was a global crisis that required global solutions. "We have seen that no economy in the world is immune. The crisis is being felt hardest by the majority of developing countries that do not have any margin of comfort to help them absorb its impact."

"They do not have the financial means to provide fiscal stimulus packages to help re-boot their economic growth, nor subsidies to help their farmers or businesses ride out the contraction of their markets, nor social safety nets to help protect their populations from declining incomes or prevent families from being pushed back under the poverty line," he added.

The global community needs to act together to help developing countries, especially the poorest among them, to mitigate the worst effects of the global crisis, he stressed.

Commenting on his monitoring report, Lamy said that on the one hand, there has been further slippage towards increased restriction and distortion in certain tradable goods sectors of the world economy.

On the other hand, there have been some signs of improvements as more governments have introduced trade-opening and facilitating measures in the last three months. This is exactly what is needed from trade policy-makers in current circumstances, to reaffirm their commitment to, and confidence in, open markets.

"And there is no indication yet of governments more generally unwinding or removing trade-restricting or distorting measures that they imposed early on in the crisis," he added.

"We can continue to take heart from the fact that the WTO's multilateral trade rules continue to provide a valuable insurance policy against protectionism spiralling out of control. But as long as we continue failing to pay the premiums on that insurance policy, by delaying the conclusion of the Doha Development Round, we are leaving ourselves no room for complacency about the future."

"At a time when the global economy is still fragile worldwide and in face of the unprecedented decline in trade flows, we must send a clear and credible message that protectionism is not the answer," he said, adding that for credibility, "there is no better guarantee than to conclude the DDA (Doha Development Agenda), and I am pleased to say that we are witnessing the renewal of high-level engagement in the DDA negotiations and a genuine desire to finally bring these talks to a successful conclusion."

With regards to the monitoring process, the WTO chief said that the Secretariat has continued to try to track as best as it can the trade-related elements of recent fiscal stimulus programmes and industrial and financial support measures.

"This continues to be a particularly challenging part of the exercise because of the difficulties of collecting hard data in these areas. Without that data, it is not possible to assess the impact they are having on trade flows," said Lamy.

In a statement at the informal TPRB meeting, India said "While there are some encouraging signs, it is too early to relax our vigilance. There are too many worrying signs in the global economy for us to do that."

"For one, we should accept that as and when the recovery begins, the overhang of unemployment will continue to depress aggregate demand. Our expectations, therefore, have to be predicated on the fact that we will see slow or no growth for the next 2-3 years," said India.

Commenting on some specific areas of the report, India said that in rules, it had noted the increase in Anti-Dumping measures. Trade remedy measures tend to be counter-cyclical: that is, rising during times of economic downturns, and falling during periods of boom. This has been amply demonstrated in the case of developed countries by the various studies cited in the TPRB report.

Hence, said India, a slight rise in AD (anti-dumping), CVD (countervailing duty) and SG (safeguard) measures should not be a cause of concern. What is of concern is the fact that the products most targeted are of export interest to developing countries.

In services, India said that there are some areas of comfort and some of concern. Services sectors have certainly been more resilient in the face of the recession and this is certainly comforting. In the case of India, this has been mainly because of the continued, albeit slower growth of outsourcing. It is also due to the fact that outsourcing contracts tend to be "sticky" and resistant to change because of the familiarity of the service provider with the client.

"But, we do see instances of protectionist measures mainly by developed countries and these are worrisome. Some examples are the recent bailouts of financial institutions and the putting back of energy sector reform in the EU," said India.

Noting that the report had undertaken some analysis of the implications of the bailouts, India said that such bailouts have immense implications for global trade and therefore, an in-depth analysis is called for which would cover issues such as the availability and cost of credit to developing countries etc.

Pointing out that South Africa has also proposed that the impact of the financial bailouts be discussed in-depth in the CTFS (Committee on Trade in Financial Services), India said that either the TPRB should carry out a detailed analysis of the trade distortionary effects of the bailouts or direct the CTFS to submit a report to this effect.

According to India, the Terms of Reference of the report could be broadly on the lines proposed by South Africa, which are:

-- Examine the implications of the financial crisis for a change in conditions of competition.

-- Assess the trade distortionary impact of the financial bailouts and the impact on developing countries by looking at parameters such as interest rate spreads, cost and availability of credit etc.

-- Assess the potential misuse of the prudential carve-out, which leads to the bypassing of market access commitments.

-- Role of the WTO in general and the CTFS in particular in mitigating the effects of the crisis.

India further said that another area that has received scant attention in the WTO is that of subsidies in services (paragraphs 10, 79 of the report). While there is the general obligation of non-discrimination, even this is being violated by actions such as preferential lending terms for domestic borrowers (paragraphs 82,83).

More importantly, said India, subsidies not only have lasting effects, but also tend to be "sticky". The stubborn albatross of agricultural subsidies around the neck of the global trading system is a clear demonstration of this fact.

"We would like a thorough discussion on the issue of subsidies in services," said India, noting that there are some proposals on the table and that it was essential to begin work to forge a consensus around these proposals.

India also cautioned Members against going back on their services offers and the signals of last year, particularly in areas of interest to developing countries.

Monitoring and surveillance of trade measures becomes all the more important, said India, adding that its proposal for systemic improvement of the WTO, which includes the incorporation of non-tariff barriers in the IDB (Integrated Database), is a step in this direction (see SUNS #6739 dated 13 July 2009).

India also stressed that major concerns remain at the macroeconomic level. Notwithstanding the fiscal stimulus by a number of countries, the sluggishness in aggregate demand is expected to continue. In addition, protectionist measures would push the forces of "deglobalization", which, in turn would have a direct impact on global trade.

India also touched upon some recent developments related to the proposed introduction of border taxes in some countries based on the carbon footprint of products.

"At a time when the world is engaged in fashioning a cooperative response to the challenge of climate change, talk of border measures can only be disruptive and will add unnecessary contentiousness to an issue which is already fraught with huge complexities."

Once the world is able to establish an agreed framework for commitments and contributions through the Climate Change agreement, issues like "carbon leakage" or "carbon equivalence" will become redundant, said India, adding: "Therefore, any unilateral imposition of such a nature can only raise the bar for a new and pernicious form of protectionism, something the world can ill afford in these difficult times."

India also mentioned the adverse impact of OECD borrowings on general credit availability for developing countries.

"We know that there has been a reassessment of risks and credit ratings that has been to the disadvantage of developing countries. This has led to the squeezing out of developing countries from capital markets and also raising their capital costs. While some measures to address this issue have been proposed by the World Bank and IMF, much more needs to be done."

In its statement at the informal meeting, Brazil highlighted a few points regarding the methodology adopted for reporting the trade-related measures.

For example, "we are concerned that a casual reader may be tempted to assess how protectionist a certain country has been by merely counting the measures listed in the report. This would be a serious mistake.

"Each measure must be evaluated in light of its actual trade impact, bearing in mind three key aspects: (I) the level of development of the country; (ii) the volume of trade at issue; and (iii) the degree of distortion of the measure."

Brazil noted for example that bundled measures - such as the so-called "rescue packages" or certain types of "stimulus packages" - do not attract as much attention as they should. For example, a "Buy American" provision is reported in the same way as the initiation of an anti-dumping investigation even though their distorting impacts are not even remotely comparable by any standard.

"Therefore, simplistic or merely numerical comparisons must be avoided. We believe that a clear disclaimer to this effect could be helpful."

According to Brazil, the report also does not distinguish between the raising of new barriers and the return of tariffs to their regular levels after a temporary reduction to mitigate circumstantial market gaps.

As one example of the latter, Brazil said that it had exceptionally granted duty-free treatment for eight tariff lines of steel products because of a momentary shortage in supply.

It had recently brought these tariffs back to their normal applied levels - not bound levels - and this has been reported. "We could have clarified this to the secretariat had we been previously consulted on this measure."

On the reporting of trade remedies, Brazil took note of the methodology applied by the Secretariat to correlate the initiation of investigations of trade remedies and the economic cycle. At first glance, Brazil said, one could presume that such a correlation exists because in a crisis, companies and sectors are more likely to resort to trade remedies.

Nonetheless, added Brazil, one should be very careful when reporting trade remedies. First, the initiation of an investigation will not necessarily result in the imposition of a final measure. Second, if applied properly, these remedies - particularly in the case of anti-dumping and countervailing duties - simply offset unfair trade that is actually causing or threatening to cause injury.

It is worrisome that in this section, the Secretariat has highlighted the role played by developing countries. One of the reasons why developing countries are more often resorting to trade remedies is that they were not traditionally big users of those measures. The truth is that they have finally learned to use the same tools that were so often employed against their exports to the developed markets.

Turning to agriculture, Brazil expressed disappointment over the lack of emphasis in the report on the reintroduction of export subsidies in the dairy sector, precisely where prices fell the most (now at two-thirds of the 2008 peaks). Export subsidies will further aggravate this situation.

As to cotton, although some relevant information on reduction of production, area planted, and trade is provided, there is no data on subsidies' levels. "Also, the aggregate production data do not allow us to discern the impact of the situation in developing countries, particularly among the most vulnerable in Africa."

On the services and financial sector, Brazil said that the report also provides some analysis regarding services, indicating that trade in this sector has been more resilient than in goods.

It is important to highlight that trade in services remains vulnerable to the reduction of foreign direct investment. It is also a victim of the embedded nationalism of stimulus packages with buy/lend/hire/invest local provisions.

Brazil said that the economic scenario portrayed in the report continues to give reasons for concern. While current WTO disciplines and rules have been able to hold out high-intensity protectionism, the overall situation remains critical.

Developing countries are still the most vulnerable in the economic downturn. "We therefore welcome the pledges made by key world leaders last week in L'Aquila to conclude the Round and we hope that, this time around, we are capable of translating this political guidance into actual progress in negotiations." +