WTO Has Obstacles to Trade In Retreat

Despite media reports of rising tariffs and other barriers to trade, a new report from the WTO, the UN, and the OECD concludes that protectionist policies have been declining since the end of 2009. The amount of trade affected by barriers increased only a fraction during the recent economic crisis, though some countries, particularly in Africa, saw their trade decline precipitously in that same period. There are still concerns that countries could revert to protectionist policies, which become particularly attractive during periods of sustained unemployment, as populism rises. Independent trade analysts paint a slightly gloomier picture than the report and say domestic pressure for trade barriers remains a threat to the global economy. – YaleGlobal

WTO Has Obstacles to Trade In Retreat

WTO says it is still a risk, but some governments are opening up
John W. Miller
Thursday, March 11, 2010

BRUSSELS—Protectionism by national governments began to decline in the fourth quarter of 2009 but remains a major threat to the global economy, according to a World Trade Organization report.

The document, co-written by officials from the WTO, the Organization for Economic Cooperation and Development and the United Nations, will be sent Monday to the governments of the Group of 20 leading nations. A copy was reviewed by The Wall Street Journal.

The 85-page paper is an attempt by the Geneva-based WTO to temper what its officials say are overly pessimistic reports in the media of a rising tide of tariffs, import restrictions, subsidies and other protectionist measures. At the same time, the WTO continues to warn that protectionism is still a risk that could prevent trade from rebounding after it fell 12% in 2009, the sharpest drop since World War II.

The report argues that trade in goods remains relatively unencumbered. The share of world imports between September 2009 and February 2010 affected by protectionist measures was only 0.4%, down from 0.8% between October 2008 and October 2009, the report found.

In addition, countries didn't impose any direct new measures to restrict trade in services, and the number of antidumping investigations, which often spur import-tariff increases, fell to 152 in 2009 from 193 in 2008.

It also said a G-20 goal of making available $250 billion in trade finance has been achieved, mostly through national export-credit agencies. The average price for letters of credit in larger emerging economies like Brazil, China and India has fallen to 0.7%-1.5% from 1.5%-2.5% a year ago. Some governments also wrote new legislation that encourages foreign investment. Australia, for example, agreed to allow foreign ownership of domestic airlines. China issued a decree making it easier for foreigners to invest and allowing some foreign law firms to set up shop. Indonesia abolished the monopoly of its state electricity company.

However, there is plenty in the report to dispel complacency. Twenty-seven million people lost their jobs in 2009, it says, bringing the total of unemployed to 200 million, a record. "Experience shows that prolonged periods of job losses and unemployment are one of the main catalysts for more restrictive policy making," the report says.And inflows of foreign direct investment fell to around $1 trillion from $1.7 trillion in 2008. Also, the number of nontariff trade barriers notified to the WTO grew to 1,489 in 2009 from 1,272 in 2008. China stood out, imposing 80 new safety restrictions, mostly on food, between September 2009 and February 2010, compared with five in 2009.

Some parts of the world have suffered sharper trade declines than others. The dollar value of African exports slid 32% in 2009, compared with a 23% decline in the rest of the world. That reflects "Africa's heavy dependence on exports of fuels and mining products whose prices plunged during the crisis," according to the report. The situation is unlikely to improve. According to the report, banks are charging 20% to 32% interest to endorse a letter of credit for an African company seeking to import from the U.S. and Europe.

Most other analysts paint a nuanced picture of the situation similar to the WTO's, but most say the pressure for greater protectionism isn't weakening. "The rising rate of protectionism has not abated since the beginning of the financial crisis," says Simon Evenett, director of Global Trade Alert, a monitoring service funded by different governments.

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