Warning issued over protectionism surge
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Emerging Markets

Warning issued over protectionism surge

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Protectionism by G20 member countries is on the rise despite pledges to maintain open trade relationships, new figures seen by Emerging Markets reveal

G20 countries are still imposing trade barriers in the midst of an economic downturn, despite an “unwavering” pledge a year ago to resist protectionist measures, new figures seen by Emerging Markets reveal.

The third quarter of 2011 saw a jump in protectionism in the wake of the sharp deterioration in business sentiment over the summer, according to an independent monitoring group.

Global Trade Alert (GTA) said its latest figures, which will be published next week, were as bad as its findings for the first quarter of 2009, when fears about protectionism were at their highest.

“Trade tensions are mounting,” said Simon Evenett, an economics professor at the University of St. Gallen in Switzerland, who runs GTA. “Governments are less willing to turn a blind eye to other nations’ protectionism.”

G20 nations have consistently pledged not to impose trade barriers to protect their domestic economies. However, of the 72 protectionist measures that were implemented during the third quarter, 61 of them were by instituted by the G20 countries.

Emerging market G20 members were the worst offenders: Argentina was responsible for 25 of the measures, China for 13, Russia for seven, and India for six. By contrast, advanced economies tended to use tighter national labour markets to protect their economies. “The loopholes and weaknesses of WTO accords have been exploited once again by savvy trade ministries,” Evenett said.

He contrasted examples of “murkier” protectionism, such as currency intervention, with the “surgical strikes” found in recent anti-dumping investigations. Recent examples of murky protectionist measures included Brazil strengthening preferences for domestic products in government procurement in August and new “Buy American” provisions included in a bill to fund the Department for Homeland Security.

Evenett said trade rows were no longer confined to currency wars, as large trading partners were no longer keeping silent about each others’ breaches. “The risk is that, as the true scale of crisis-era protectionism is acknowledged, bilateral spats over protectionism will spiral out of control,” he added.

The GTA report comes on the heels of a report from three major international bodies showing that the pace of implementation of new trade restrictions by G20 economies has hardly slowed over the past six months.

The World Trade Organisation, the Organisation for Economic Cooperation and Development and the UN’s trade and development body urged G20 leaders to send a “strong signal” to the rest of the world to keep trade markets open.

According to the WTO, the number of restrictive measures fell only slightly in the six months to October, to 108, compared with 122 over the preceding six months.

Meanwhile fewer than a fifth of the 674 trade-restricting measures introduced since October 2008 have been eliminated. The number eliminated has risen by just 1% to 19% since May.

“As a result, the cumulative share of world trade affected by new trade restrictions since the start of the financial crisis continues to rise, to over 2% today,” WTO director general Pascal Lamy said. “This is far too high, and should be addressed urgently.”

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