Protectionism will worsen the crisis

World economic growth, as measured by the world’s production of goods and services, has slowed abruptly in 2008 and the early part of this year. The contraction in demand led to a slowdown in production, and in international trade. World merchandise trade is projected to fall by a full 10 per cent this year, and foreign direct investment, which fell by 15 per cent in 2008, is projected to drop further.

The World Trade Organisation (WTO) has quickly responded to the crisis by cautioning governments against beggar-thy-neighbour policies, which have been tried in the past, in similar situations, and which have shown their gross inadequacy. It has cautioned against protectionism through a monitoring mechanism of trade restrictions that it enacted in the immediate wake of the financial crisis.

What the WTO radar shows so far is ‘low-intensity’ protectionism, a large number of measures whose intensity has so far remained constrained. But there should be no complacency. Rising unemployment will continue to usher in the inevitable protectionist pressures.

The impulse to go ‘local’ in answer to the financial crisis must be resisted. In fact, we should continue ‘going global’, for the simple reason that many consumers have seen their purchasing power decline, and are in need of cheaper, more competitive, goods and services, and not more expensive ones produced behind a national tariff wall.

Consumer is king

International trade helps lower the cost of goods and services to the final consumer. And it is for this reason also that it is imperative that we conclude the Doha Development Round of world trade negotiations started in November 2001. In fact, if the entire WTO community of nations were to decide to raise its applied tariff levels all the way up to WTO legal ceilings, this would raise the world’s average tariff hurdle to about twice its current level. In other words, exporters would become 100 per cent worse-off than they are today if the full policy-space that the WTO provides were to be exploited.

The Doha Round would not only open new markets for exporters, but also curtail some of the existing margin of manoeuvre that could take the world backwards.

This explains why this issue has featured so highly on the G20’s agenda since last year, including in Pittsburgh last summit (September 24/25). I have used  this opportunity to report to G20 leaders on the state-of-play of international trade. I said that political signals of commitment to resisting protectionism and to concluding the Doha Round in 2010 were needed. But that, as long as they do not translate into concrete engagement, declarations would not in-and-of themselves deliver an outcome. Leaders have agreed that their negotiators now embark on the work programmes that we have established for the next three months, and that they then assess our collective ability to achieve our 2010 target. It is now incumbent upon them to ‘walk the talk’.

Bouncing back

Part of the contraction in world trade that we have seen in 2008 and 2009 occurred due to the drying-up of trade finance. Trade finance institutions rolled back their export credits in response to the financial crisis, having seen the number of defaults on trade contracts that had taken place. The WTO has not sat by in silence in response to the problem. It has mobilised the trade finance community and world leaders, alerting them to the downward spiral in world trade that this was leading to. Trade finance is now beginning to shore-up. It is my hope that we will soon see previous levels of trade finance restored, especially where it is most needed. In other words, for small businesses and least-developed countries.

While the financial crisis is a serious preoccupation, it is not the only global problem that awaits action on our part. It is critical as well that the international community ‘seal a climate deal’ at the Copenhagen Summit at the end of this year. Only through an equitable ‘global’ climate deal can we tackle the climate crisis effectively. We need a deal that clearly spells out the commitments of each and every player. Unilateral action of a few will not halt the climate crisis. WTO members can help by accelerating market-opening for environmental and climate-related goods and services through the Doha Round. In this way, the trade community can chip into the construction of a global climate deal; one that we certainly hope to see emerge from the Copenhagen Summit at the end of this year.

All of us must act because what is at stake is our very ability to survive.

(The writer is director-general of the World Trade Organisation)

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