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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
RETURN OF PROTECTIONISM AS A GLOBAL PROBLEM?
Its incidence on the 2009 WTO agenda

by Félix Peña
January 2009

English translation: Isabel Romero Carranza


 

The 2009 WTO agenda will be greatly conditioned by the evolution of world trade in the next months. The main reason for this is that, if the deflation and recession scenarios take place in the most important economies, the current and already manifest tendency towards different modalities of protectionism will be accentuated. It should also be noted that, at the beginning of 2009, the somber forecasts predicting the economic and even political effects of the current global economic crisis tend to be confirmed.

Some of these protectionist modalities would take advantage of the margin offered by the limitations to discretionary commercial policies assumed by countries in the WTO.

Due to the current situation and its possible evolution, it is even more important to preserve and strengthen the WTO system. Since its creation, together with the GATT, seventy years ago, one of its main contributions has been to add a certain degree of discipline to the commercial policies of member countries.

The Doha Round continues to be a priority for the WTO. The forecasts predicting that such goal may be reached in 2009 are cautious. The combined effects of a probably complex scenario in which the Doha Round may not reach its conclusion and where, at the same time, trends towards protectionism are accentuated and preferential commercial agreements multiply - agreements which are discriminatory due to their potential impact on other countries - should have an active forum for analysis and discussion within the framework of the WTO mandates.

Two of the WTO work mechanisms should be strengthened. The first one is the Ministerial Conference, which will gather this year; the second one is the general review of the evolution of the international trade environment. The combination of these two mechanisms could offer a framework within the scope of the WTO that would help search for systemic answers to collective problems.


This year the World Trade Organization (WTO) faces two challenges. These should be confronted simultaneously: to bring the Doha Round to its conclusion and, at the same time, to become the institutional background in which member countries examine the impact of the current economic crisis on world trade, particularly of the measures adopted to face it and that could greatly affect commercial flows.

The 2009 agenda, including that related with the Doha Round, will be strongly conditioned by the evolution of global trade in the following months. If the recession and deflation scenarios take place in the main economies, there could be a tendency towards an increase of certain modalities of protectionism that have already become manifest. These would complicate the current global situation even further. (For more on this issue, please check the e-book by Richard Baldwin and Simon Evennet (editors) and the article by Carolyn Deere, both cited under "Recommended Reading" included at the end of this newsletter).

In this regard, it should be noted that, at the beginning of 2009, the somber forecasts predicting the economic and even political effects of the current global crisis tend to be confirmed. These have started to show in key sectors of the Mercosur countries. Last December's figures for the automotive industry are quite telling. According to ADEFA (Association of Automotive Factories of Argentina), the fall in production in relation to the same month of the previous year has been of 47.3 percent. And in Brazil, as per ANFAVEA (National Association of Automotive Vehicle Manufacturers of Brazil), the decrease during the same period of time has been of 54.1 percent. This situation is clearly affecting the sector's commercial exchange between the two countries.

However, the most alarming scenario comes from the United States. The description of the situation by president elect Barak Obama, on January 8th in Washington, during his introduction of the measures he will propose to Congress, is more than eloquent: "We start 2009 in the midst of a crisis unlike any we have seen in our lifetime - a crisis that has only deepened over the last few weeks. Nearly two million jobs have now been lost, and on Friday we are likely to learn that we lost more jobs last year than at any time since World War II. Just in the past year, another 2.8 million Americans who want and need full-time work have had to settle for part-time jobs. Manufacturing has hit a twenty-eight year low. Many businesses cannot borrow or make payroll. Many families cannot pay their bills or their mortgage. Many workers are watching their life savings disappear. And many, many Americans are both anxious and uncertain of what the future will hold. I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible. If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future. And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world" (for the full text go to http://www.ft.com).

Furthermore, the economic data from the European Union, indicating a pronounced and growing recession, is alarming as well. It comes as no surprise that, as announced by the European Commission on January 8th, economic trust in the Euro region has dropped to its lowest point in the last twenty four years.

It is in such a context that the warning signals regarding different forms of protectionism tend to emerge. Some of these protectionist modalities would take advantage of the margin of action offered by the limitations to discretionary commercial policies assumed by countries in the WTO. In many cases, the current ceilings are too high as a result of the difference between consolidated and applied tariffs, and between current agricultural subsidies and those that may be granted without violating existing commitments.(On this subject, please see the article by Antoine Bouët and David Laborde mentioned under the section "Recommended Reading". See also the article by Simon Evenett in the e-book by Baldwin and Evenett (editors) under the same section).

The most negative effect of the successive failures in concluding the Doha Round is, perhaps, that the opportunities to lower such ceilings were lost. This could be proof, yet again, of the simple truth which José Saramago reminds us of in his fascinating book The Elephant's Journey: "not only what is best is enemy of what is good, but also what is good, try as it may, will never come close to what is best". In a certain way, the winding journey of the Doha Round reminds us of the elephant's journey between Lisbon and Vienna!

Other modalities of protectionism may result as a consequence -not necessarily a desired one- of the measures that are being applied in many countries to counteract the recessive effects of the current economic crisis. They originate in public policies but also in the defensive strategies applied by those companies with simultaneous production in different countries. The automotive sector is a clear example, but it is not the only one. If recession deepens, the effects of a "run for your life" outlook may have, as it has in the past, dangerous consequences for world trade. These may even result in unsettling political impacts on countries and even whole regions.

The mere fact that such a scenario may be feasible makes it altogether more important to preserve and strengthen the WTO system. Since its creation, together with the GATT, seventy years ago, one of its main contributions has been to add a certain degree of discipline to the trade policies of member countries. It bestows predictability to the rules that influence the global exchange of services and goods. It benefits those countries with the greatest real economic power, as well as those with a small relative share in world trade, such as Argentina and other members of Mercosur.

The Doha Round continues to be a priority for the WTO. (On this issue, please see the speech by Director General Pascal Lamy, addressed to the Trade Negotiations Committee on December 17th, 2008, where he also conveys his opinion on the other priorities of the 2009 WTO agenda, on http://www.wto.org). Last December, negotiators were unable to comply with the G20 Washington Summit mandate, which had been very clear. This fact undermines the credibility of any other commitments assumed on that occasion.

The forecasts predicting that such goal may be attained in 2009 are cautious. The new U.S. government is expected to provide believable signals for a more precise outlook on this issue. However, it is obvious that it will not depend only on the position adopted by the U.S. In the arena of international trade, as with the current economic crisis in general, a collective leadership is required. This leadership may even transcend the G20, which will be meeting again in London next April.

Concluding the current trade negotiations would send positive signals to governments, citizens and businesses of the efficiency of the system, even when the actual results fail to bring together the ambitious goals imagined in Doha in 2001.

In any case, it would be advisable that, without weakening such goal, countries enhance the WTO 2009 agenda. Placing the emphasis on measures to facilitate and aid trade, even when necessary, may prove insufficient if the world situation continues to deteriorate.

The combined effects of a probable and complex scenario in which the Doha Round is unable to reach its conclusion; where, at the same time, the trends towards new and existing modalities of protectionism are accentuated; and where preferential commercial agreements -which are discriminating due to their potential impact on the rest of the countries- tend to multiply, should be analyzed and discussed by member countries in an active forum within the WTO.

For that purpose, two existing work mechanisms should be fully engaged. These would enable to harness the potential for collective action that results from the current legal and institutional system of the WTO, without the need of any formal innovation.

The first of these mechanisms is the Ministerial Conference, which will meet this year. It was held for the last time in 2005, even though it was scheduled to take place every two years. Although not limited to the Doha Round, its agenda should not be too comprehensive either. However, it should enable to approach the general picture of the impacts of the crisis on world trade, including those originating in policies applied by the member countries. Its preparation should be channeled through different types of informal ministerial meetings. The active participation of those countries with greatest incidence on the global exchange of services and goods would be essential, especially considering that thirty countries represent approximately 90 percent of world trade. The World Economic Forum, which will be meeting at the end of January (www.weforum.org), is an opportunity for the participating ministers to advance ideas on the issue.

The other existing work mechanism is the general review of the evolution of the international trade environment, foreseen in item G, Annex III, of the Marrakesh Agreement. Until the present day it has not been used to its full advantage. Pascal Lamy, on his speech of December 17th before the Trade Negotiations Committee, pointed out: "I believe that the WTO has a particular responsibility to follow up on the trade measures which have been taken in the wake of the financial crisis; you all know that I have set up an internal Task Force to produce regular updates of these measures so that we have a better sense of the trade consequences of the financial crisis. I am ready to report to you periodically on developments on that front in writing…

I also believe it would be useful to provide a forum where this WTO radar picture could be discussed collectively; I do not think we need to reinvent the wheel so we could use one of the existing forums in the house to this effect: the Trade Policy Review Body…"

The combination of both work mechanisms may offer a framework within the scope of the WTO that would help search for systemic answers to those issues that have become collective problems.


Recommended Readings of Recent Publication:

  • Alcántara, Manuel y Ortiz, María Salvadora (Eds), "Relaciones entre América Latina y Europa: Balance y Perspectivas", Ediciones Universidad de Salamanca y SEGIB, Salamanca 2008.
  • Baldwin, Richard and Evenett, Simon (eds), "What world leaders must do to halt the spread of protectionism", The Graduate Institute, Centre for Trade and Economic Integration, Centre for Economic Policy Research (CEPR), a VoxEU.org publication, en http://www.voxeu.org/reports/protectionism.pdf | o download here.
  • Bouët, Antoine and Laborde, David, "The cost of a non-Doha", IFPRI, Briefing Note, November 2008, en http://www.ifpri.org.
  • CEI, "Revista del CEI. Comercio Exterior e Integración", Centro de Economía Internacional, Cancillería Argentina, nº 13, Buenos Aires, diciembre 2008, en http://www.cei.gov.ar.
  • CEPAL, "Balance Preliminar de las Economías de América Latina y el Caribe - 2008", Comisión Económica para América Latina, Santiago de Chile, diciembre 2008, en http://www.cepal.org.
  • Deere, Carolyn, "The WTO in 2009. The Leadership Challenges", GEG Blog, Oxford 2009, en el blog de http://www.globaleconomicgovernance.org/ | o descargar aquí.
  • Guillebaud, Jean-Claude, "Le Commencement d'un Monde. Vers une modernité métisse", Éditions du Seuil, Paris 2008.
  • Lacerda Paredes, Tatiana, "A OMC e os Blocos Regionais", con prefacio del profesor Celso Lafer, Aduaneiras, Sâo Paulo 2008.
  • Moïsi, Dominique, "La Géopolitique de l'Émotion", Flamarion, Paris 2008.
  • Présidence Française de l'Union Européenne, "Collection Penser l'Europe", (7 vols), Centre d'Analyse et Prévision, CulturesFrance, Paris 2008.
  • Todd, Emmanuel, "Après la Démocratie", Gallimard, Paris 2008.
  • Torres, Jorge José, "El concepto "integración latinoamericana". Contenido, reformulaciones y continuidades", Editorial Dunken, Buenos Aires 2008.
  • Zweig, Stefan, "El mundo de ayer. Memorias de un europeo", Acantilado, Barcelona 2008 (duodécima impresión).

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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