TWN Info Service on WTO and Trade Issues (Apr09/12)
27 April 2009
Third World Network

Renewed calls at WTO to resist protectionism, more vigilance
Published in SUNS #6681 dated 16 April 2009

Geneva, 15 Apr (Kanaga Raja) -- There were renewed calls Tuesday at the WTO against resort to protectionism to get out of the present financial and economic crisis, with Members stressing that public scrutiny is an important element to alert them to the dangers of protectionism and urging governments to remain vigilant.

These views emerged at the informal meeting of the Trade Policy Review Body (TPRB), which was convened to discuss WTO Director-General Pascal Lamy's second report on recent trade and trade-related developments associated with the financial and economic crisis.

According to trade officials, Members, in their interventions, also supported the urgent conclusion of the Doha Development Agenda as the best way to provide a "collective stimulus package" to the world economy.

The Director-General's second report was released on 26 March; the first was issued late January.

In his second report, Lamy had said that there has been "significant slippage" towards protectionism since the start of this year, and that "there have been increases in tariffs, new non-tariff measures, and more resort to trade defence measures such as anti-dumping actions." (see SUNS #6669 dated 27 March 2009.)

According to trade officials, in their interventions at the informal TPRB meeting, Members noted an improvement in this report, as compared to the first report, in that it was more balanced and objective. Members called for regular reports and regular transparency meetings like Tuesday's to be organized in the future.

Trade officials said that Members stressed that there is no immediate danger of a serious crisis of protectionism and counter-protectionist measures, but there is no room for complacency and governments need to remain vigilant and committed to open markets.

While some Members were of the view that there has been significant slippage into protectionism, other Members did not share this view, saying that there has only been some slippage.

Members also highlighted the important role of the WTO in defending the open trading system and in monitoring Members' trade policies.

According to trade officials, there were some criticisms of some trade remedy measures taken recently, such as anti-dumping measures, Sanitary and Phyto-Sanitary measures, and other Non-Tariff-Barrier measures.

There was also some criticism of the stimulus packages (provided by the developed countries) that have put developing countries at a disadvantage because they have less resources to provide stimulus packages.

Trade officials said that many Members including Colombia, Mexico, Singapore, Turkey, and New Zealand supported an initiative by Hong Kong-China for a "standstill" commitment for positive action by Members.

Hong Kong-China said that it "and some other like-minded members - with economies of various sizes and at different stages of development - are exploring an initiative of making a set of 'standstill' commitments and these would entail our voluntarily giving undertakings, to refrain, for a period of time, from taking specific measures that are trade-restricting or may have an adverse impact or a distorting effect on trade."

"These would be in addition to our existing WTO commitments," Hong Kong-China added.

In his remarks at the informal TPRB meeting, Lamy said that since Members last met in the TPRB in February, the world economy has continued to deteriorate. The World Bank estimates that world economic growth will decline this year by 1.7%. The OECD estimates a decline by 2.7%. The WTO has forecasted that world trade will contract by 9%. And there are many other indicators painting a gloomy picture.

"We are indeed in the midst of very stormy waters, and the waves that are hitting our global economic vessel are unprecedented. Unfortunately, we cannot yet see when and how this global ship will finally be able to reach a safe shore."

This is a global crisis which requires global solutions, said Lamy. "We are seeing that no economy in the world is immune to the impact of the current turmoil. We must therefore not forget that developing countries, which are far from the world's financial centres, will also suffer from the repercussions of the crisis, and that most of them do not have the financial means to assist their people."

The Director-General welcomed the G20 consensus to avoid protectionism and support global trade flows with assistance to finance trade. The G20 commitment to provide $250 billion for trade finance demonstrates the capacity of the international community to address urgent global needs by helping to restore trade as an engine of economic growth. The G20 also reaffirmed its commitments on Aid for Trade, which is a vital complement to the trade-opening agenda.

Highlighting the main thrust of his report, Lamy said that the economic crisis has continued to worsen around the world, and there has been an increase in protectionist pressures globally since September 2008, driven by demands to protect domestic jobs and businesses. In such circumstances, a large premium must be attached to avoiding policies that restrict trade.

"The monitoring exercise being carried out by the Secretariat shows that there is no indication of an imminent descent into high intensity protectionism, involving widespread resort to trade restriction and retaliation. 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. Experience has shown us that protectionism does not protect. On the contrary, the danger today is of an incremental build-up of restrictions that could slowly strangle trade and undercut the effectiveness of policies to boost world demand and restore sustained growth globally," said Lamy, adding that his report indeed illustrates some recent slippages.

The main risk is that governments will continue to give way to protectionist pressures, even if only gradually and temporarily, as long as the global economic situation continues to deteriorate. This would affect all countries. But developing countries, reliant on exports to drive growth, would be hardest hit should governments move to restrict trade as a way of surviving the global crisis.

WTO Members should reiterate their strong call to resist protectionism around the world, said Lamy, adding that the G20 leaders reaffirmed earlier this month their commitment to resist protectionism and to reaching an ambitious and balanced conclusion to the Doha Development Round.

"Indeed, the best contribution to reviving economic growth around the world is to conclude the DDA (Doha Development Agenda) as one of the most appropriate collective stimulus packages. An ambitious and balanced conclusion to the Doha Development Round, which is needed now more than ever, could result in tariff cuts of at least US$150 billion per annum, which could directly benefit the consumers. And as I have said many times, completing the DDA is also the surest way we have of safeguarding our individual trade interests and the multilateral trading system against the threat of an outbreak of protectionism."

Lamy expressed satisfaction that the second report provides answers to the questions and concerns raised at the last meeting in February. The coverage of trade and trade-related measures is much wider and the accuracy in reporting them has significantly been enhanced. The report may still contain gaps, and some fine tuning may be required, he said.

In its intervention at the informal TPRB meeting, India said the report is much more comprehensive and balanced than its predecessor. It is encouraging to note that most of the measures reported on have been verified with the concerned Members or otherwise obtained from authentic sources. The report also substantially addresses another shortcoming of its predecessor by providing sensible economic analysis regarding the trade impact of such measures.

An important feature of the London G20 communique is its treatment of protectionism, said India. The communique seems to recognise that calls for an absolute prohibition of protectionist measures are likely to fall on deaf ears. "We, therefore, have a call for a standstill along with a pledge to 'rectify promptly any such measures.'"

The G20 Members have also resolved to minimise any negative impact on trade and investment of domestic policy actions in support of the financial sector. There is also an agreement to notify such measures to the WTO who, along with other international bodies, has been asked to monitor and report on whether these undertakings are being adhered to.

Read together, said India, these pledges convey a common message - that protectionism is bad, but during such times, some protectionist measures are inevitable and we should be prepared to tackle them collectively by putting pressure on each other.

In some general comments based on the analysis presented in the Director-General's report, India said that events so far have established that while protectionist pressures have increased in the last few months, doomsday predictions of a return to the Smoot-Hawley era are out of place. The world is a vastly different place today and globalisation has ensured that we are totally interdependent. Even within countries, protectionist pressures are likely to be countered by those who have benefited from globalisation.

Secondly, said India, it would be simplistic to assume that the current economic crisis is merely a result of the wrong decisions of some banks in the United States and elsewhere. There are fundamental issues involved relating to the structure of aggregate demand as well as current account imbalances in major economies. These structural issues will have to be addressed if we are to find lasting solutions. No country can continue to assume that its debt-based consumption will continue to be financed by the rest of the world. Similarly, no country can assume that its current account surpluses are the problems of others.

Already there are positive indications, noted India. Household savings in the US have recently entered positive territory. Domestic consumption in China has risen in recent months. "We are clearly moving towards a new macro-economic equilibrium in the global economy. The new equilibrium will also reflect new currency valuations with important implications for the global monetary system. It is only when this equilibrium stabilises that we will have a new equilibrium in trade flows both in terms of volumes as well as direction."

Trade flows are therefore, a function of the deep structural changes taking place in the global economy, added India.

Thirdly, said India, one of the major issues we have to contend with is the medium and long term impact of trade distorting subsidies being introduced in the context of the economic crisis. The fig leaf of justification for such subsidies will vanish when the recovery begins. But such subsidies are easier to introduce than to eliminate. It is important that we continue to emphasise a return to competitive conditions by withdrawal of these subsidies as quickly as possible. A continuation of such subsidies will not only place the developing countries at a serious disadvantage but will also inevitably burden the dispute settlement system in the WTO.

Fourthly, said India, the present crisis brings into sharper focus the specially egregious nature of agricultural subsidies in developed countries. The counter-cyclical nature of these subsidies prevents much needed agricultural reform in these countries. The trade distorting impact of these subsidies is too obvious to require elaboration.

India also said that the report has done well to present the implications of the economic crisis and the various protectionist measures introduced, on developing countries. The sharp decline in capital flows to developing countries will starve them of much needed capital for development. The increase in the IMF's resources mandated by the G20 is a welcome step but this can only help to mitigate a crisis when it is about to take place or has taken place. It cannot be a substitute for normal capital flows necessary to keep developing countries on their development trajectories. The human cost of the crisis on developing countries also needs to be understood.

In some concluding remarks, India said that there has been much debate about whether it is meaningful to have a debate in the WTO on protectionism. "This debate about the debate should now end."

Recent developments have clearly demonstrated that WTO disciplines have played a strong role in deterring protectionist forces. The role of the WTO as a bulwark of the global trading system stands reinforced. "We, therefore, need to continue our discussions on these issues in the WTO."

India also said that perhaps the time has come to look into the gaping hole in disciplines on subsidies in services. With disciplines in manufacturing already in place (the Agreement on Subsidies and Countervailing Measures) and those in agriculture being negotiated, there is no reason why there should not be such disciplines in services as well.

India further said that an early completion of the Doha Round would serve to strengthen the rules-based system and would be an effective antidote to protectionist forces. "We clearly need to garner the collective political will to enable the Round to successfully conclude this year."

Needless to say, said India, further progress has to be based on the agreements reached last year without introduction of issues extraneous to the mandate.

India said that it was a little intrigued by the figure of $150 billion mentioned in the Director-General's note as well as in the G20 communique, as being the Doha Round's contribution to the global stimulus. It added that in the last few years, it has seen numbers ranging from $400 billion to $40 billion in this regard.

Noting that economic forecasting does not enjoy too high a reputation nowadays, India quoted John Kenneth Galbraith as saying "The only function of economic forecasting is to make astrology look respectable." Today, economists especially the forecasters among them, enjoy a social status somewhat below used car salesmen and perhaps at the level of investment bankers, said India.

"I would, therefore, request [the] Director-General to provide us some details of these forecasts, including about who the beneficiaries will be."

Speaking to journalists after the informal meeting, Ambassador Ujal Singh Bhatia of India said that many members have been saying that taking off from the G20 meeting in London, the WTO has a role to monitor and everyone has a role to provide information to the WTO.

On subsidies, Ambassador Bhatia said that they are wrong but perhaps you can seek to try to justify them when there is such a deep crisis. "But when the crisis is over, we have to ensure that the subsidies disappear because they distort competitive conditions." He was of the view that if they do not disappear, they would burden the WTO dispute system enormously.

He pointed out especially to the adverse nature of agriculture subsidies which is being highlighted in this crisis, because these are counter-cyclical, and because they are counter-cyclical, to that extent they do not allow agricultural reform to take place in developed countries.

The Indian envoy also noted that there are disciplines on subsidies in manufacturing and we are now negotiating disciplines on subsidies in agriculture. "Where are the disciplines on subsidies in services," he asked, adding that there is "a gaping hole in the WTO in terms of disciplines on subsidies in services and we need to start discussing that."

In its intervention at the informal TPRB meeting, Brazil said that the Director-General's report provides useful background information on trade-related events since September last year and their impact on the global economy, underscoring the most significant policy issues. In this sense, the report is a welcome step in providing additional transparency and updated data on trade measures recently adopted by Members.

Brazil said that the report confirms the gloomy prospects of the depth of the economic downturn with an estimated contraction of trade in the order of 9%. Some other estimates are even more pessimistic. The reasons behind that sharp reduction of trade rest in the decline of world demand in an increased globalized world and restrictions on trade finance prompted by acute risk-aversion. It is yet to be ascertained the impact of the recent measures adopted by Members reacting to the decline on trade.

Noting that the recent G20 London Summit announced an unprecedented array of coordinated measures in the fields of finance regulation, stimulus packages, reform of the international financial system and trade finance, Brazil said "Nonetheless, we still have to deal with the fact that there will be a time lag before any impact begins to be felt."

Brazil further said that as pointed out in the report, the initial response by Governments to forestall domestic protectionist pressures is being gradually eroded by political pressures. This "slippage", as coined by the Secretariat, is hardly surprising, as lobbies and interest groups become increasingly articulate in their demands for protection.

Brazil said that it was pleased to note that the document highlights perceptions that are long held by it and the G20 regarding trade-distorting domestic support and export subsidies in agriculture. The recent price increases of commodities had relegated the question of agricultural subsidies to the back seat, as applied levels were brought to minimal levels in comparison to the outrageous WTO bound levels.

However, added Brazil, decline of international prices of agricultural products is already occurring for many products, particularly cotton and dairy products. Unchecked cotton subsidies, maintained against successive Appellate Body rulings call into question the credibility of the system. "We still have time to address this question in the Round, but it is running out fast."

On trade finance, Brazil said that recent estimates point out that the financial gap may reach an amount of up to $300 billion. This amount is relatively small in comparison to world trade that depends on trade finance - $10 trillion. Notwithstanding, the problem is serious because it is concentrated on the financing of exports from LDCs and other vulnerable countries. The G20 decision to ensure $250 billion in support to trade finance is therefore well-timed.

Regarding stimulus packages, an instrument of choice of developed members, they are necessary in the present circumstances as a means to boost falling demand and to sustain the level of economic activity. "Best practices" in this area should preferably involve non-target subsidies to consumption rather than to production, said Brazil.

Nevertheless, noted Brazil, political pressures are bound to attempt to allocate resources to very specific sectors. There will be a push to ensure that those resources are spent domestically without any leaking to foreign providers, hence the "Buy National" requirements. Such provisions are unhelpful and send all the wrong signals. Besides they must be thoroughly scrutinized and analyzed to assess their trade effects.

"We wish to put on record that vague statements to the effect that such packages are 'WTO compliant' should not be taken at face value."

According to Brazil, a welcome conclusion found in the report is that there is a wide scope for the adoption of restrictive measures that are perfectly compatible with WTO commitments and that such measures bear close relationship with trade losses due to the imposition of trade barriers and increase in subsidies. The multilateral trading system has been efficient enough to keep in check the high intensity protectionism of the 30's, but new negotiated outcomes are needed to avoid the new generation of equally nefarious protectionist measures.

The assessment that the Doha package in agriculture and NAMA is worth a stimulus package of $150 billion (or more if other negotiating areas such as trade facilitation and services are taken into account) is an additional incentive for the conclusion of the Round, added Brazil.

In its intervention, the United States said that "the results of our own monitoring are similar to the factual contents of the report. We understand the danger of an incremental buildup 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.

"The Director-General this morning used the term 'some slippage', which we think is more accurate. Overall, in the face of strong pressures in many capitals, major protectionist measures have been avoided. Our monitoring has also made us aware of numerous restrictive measures being considered by our trading partners but which have ultimately been rejected. We appreciate such decisions," said the US. The US further said that it interprets the results as showing that - thus far - the system is working, largely due to a combination of the presence and awareness of WTO rules along with the effects of very visible individual and collective monitoring efforts. That said, there is no doubt that the global trading system is currently being tested severely, and as the Director-General pointed out, the importance of great vigilance in monitoring the situation is obvious.

The US also reiterated that it remains committed to conclude (as the G20 leaders said) "an ambitious and balanced" Doha Development Agenda (DDA). "In that regard, we support India's request for details on the $150 billion figure in the report for estimated tariff savings from DDA."

At the end of the informal meeting, the Director-General made some concluding remarks in which he said that the purpose of the exercise is now clearer - it is a monitoring exercise that creates more transparency with the effect of achieving greater public scrutiny of government policies, and something that puts pressure on governments not to resort to protectionism.

He said that this chain of events is now better understood and we should not fall into the trap of trying to define exactly what is, or is not, a protectionist measure. We should not discuss whether a measure is protectionist, but whether a policy is protectionist.

In reference to questions by India and the United States on whether the Director-General can explain the figure of $150 billion in his report with respect to the market access package on industrial and agricultural goods that is on the table in the Doha Round, Lamy said that the figure is not "exact astrology" or "rocket science". It is a calculation of duties foregone as a result of the implementation of the July package and considering trade flows in previous years.

He offered for members to sit down with the Secretariat and some technical people to study where the figure of $150 billion comes from and share the details with the other members.

Lamy also said that the next report will be completed by mid-June for another review by members at an informal TPRB session before the end of that month. +