The head of the World Trade Organisation has delivered a stern warning to finance ministers to stem a rising tide of protectionism that may derail the nascent economic recovery and inflict pain on the most vulnerable countries.
Pascal Lamy, the WTO’s director general, told Emerging Markets that he was worried that further increases in unemployment would increase the pressure on governments to slap on tariffs or impose other non-tariff barriers to imports. “As the social consequences of this crisis begin to bite and unemployment continues to rise, the pressures to take protectionist actions will increase,” he said.
“Governments have avoided the use of the most restrictive measures, but warding off pressure to use these instruments will almost certainly become more difficult in the coming year.”
Lamy said that while the major economies had held back from implementing “high intensity protectionist measures” there had been “slippage” in terms of the application of non-tariff measures, burdensome administrative procedures and measures that restrained trade.
“These measures may or may not be in line with WTO rules, but the point is that they restrain trade [and] run the risk of creating tit-for-tat responses which would slow down the recovery.”
His comments come in the wake of a high profile dispute between China and the US, the world’s two largest trading partners, over the Obama administration’s imposition of tariffs on Chinese tyres.
It also comes against a background of rising protectionism. The WTO’s own research shows that several G20 countries had raised tariffs and introduced new non-tariff measures, particularly against steel, or had reintroduced trade-distorting agricultural export subsidies.
Lamy told Emerging Markets that smaller and more vulnerable countries were the most dependent on a revival in world trade to lift them out of recession, as they did not have the resources for budgetary stimulus or bailouts.
The IMF’s International Financial and Monetary Committee of 24 finance ministers used their communique to reaffirm their “collective responsibility to avoid protectionism in all its forms”.
Lamy praised the IMF and the World Bank for pushing for a successful conclusion to the Doha round of trade talks that were launched in 2001, and for urging rich countries to provide funds for the Aid for Trade – development assistance aimed at improving poor countries’ ability to trade.
“The bank and the Fund are key partners in this effort. Anything that can be done in Istanbul to ensure that contributions are enhanced for Aid for Trade and other trade related technical assistance would be a very welcome development,” he told Emerging Markets.
He reiterated his plea to ministers to sign a new global trade deal under Doha that he said would cut raw materials costs for poor countries and open up new markets to rich nations, at the precise time that an economic boost was vitally needed.
He said trade volumes were on track to shrink by 10% this year. “The realization is dawning that trade is the lifeblood for a great many economies, and that anything which can be done to stimulate it should be done. I am confident that governments will continue their efforts toward reaching a deal.”