New Report Hints at Broken Promises and Trouble Ahead for World Trade

A report issued by the World Trade Organization reveals that key U.S. trading partners have taken steps to erect new trade barriers and improve the export performance of domestic industries. While the report is relatively sanguine about the effect of protectionist pressures on international trade thus far, the impact on the trading system of countries' responses to the global economic crisis may not be clear for some time and the current trajectory is not encouraging.

The report, dated January 23 and elegantly titled "Report to the TPRB from the Director-General on the Financial and Economic Crisis and Trade-Related Developments," has not been made public by the WTO though it has been circulated to reports and has appeared on at least one website.

It catalogues a range of measures which countries from Korea to Ecuador have undertaken in recent months which either complicate or restrict trade. Russia, for instance, has increased tariffs on automobile imports while Indonesia has restricted the means of entry of imports into the country. Overall, the WTO concludes that,

to date, most WTO Members appear to have successfully kept domestic protectionist pressures under control. There has been only limited evidence of increases in tariffs and non-tariff barriers, or of increased resort to trade-remedy actions.

But the report does not capture the universe of trade-restricting or distorting measures that have occurred or are likely to occur.

Brazil just announced new measures which require importers of motor vehicles, wheat, capital and other goods to obtain pre-approval prior to receiving goods from overseas. Japan and other Asian countries may intervene in currency markets to stem the appreciation of their currencies against the dollar, which will have an effect on global trade flows. In the United States and around the world, new "buy national" provisions are being debated as part of stimulus and recovery packages which, depending on their scope and how they are implemented, may (or may not) violate global trade rules and could encourage other countries to adopt similar policies when crafting their responses to the economic crisis.

In addition, demands continue to mount for new and higher levels of protection. India's decision to raise steel tariffs, for example, has been met with calls by Indian industry for even higher tariffs.

And while the report notes some efforts by countries including China and Argentina to facilitate trade by lowering export taxes, such policies are consistent with a mercantilist mindset -- one which attempts to promote exports and limit imports. In fact, the report notes that while Argentina has lowered export taxes on wheat and corn, it has also enacted new licensing requirements on sensitive products including auto parts, textiles, televisions, toys and leather goods.

The problem with supporting export-oriented growth while limiting imports is that such behavior encourages similar strategies by other countries, in the end leaving all export markets closed and all economies worse off.

This is not the way it was supposed to be. In November, leaders of the G-20 nations met in Washington to develop policies aimed at mitigating the impact of the global financial crisis. At that meeting, as well as at other gatherings like the Asia-Pacific Economic Cooperation forum, world leaders pledged not to put in place new protectionist tariff and non-tariff barriers to trade. Participants in the G-20 meeting agreed that,

We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.

By the WTO's count, six members of the G-20 - Argentina, Brazil, India, Indonesia, Russia, and South Korea -- have already broken this pledge. (The European Commission has announced its intention to reinstate export subsidies for some dairy products from the end of January, a move that would seem to break the G-20 pledge made by France, Germany, Italy and the United Kingdom.)

Backtracking on pledges made at the G-20 threatens to undermine the credibility of the G-20 and the global trading system. President Obama and other leaders will have another crack at committing to an open trading system in London this April, when British Prime Minister Gordon Brown hosts the next G-20 summit. Heads of state should use that meeting, as well as the current discussions in Davos in and around the World Economic Forum, to find new ways to inject confidence into the global trading and financial systems rather than erecting new walls that jeopardize trade and economic growth.

A good start would be to agree to enforce the "no new tariffs pledge" and redouble efforts to conclude the Doha Round of trade negotiations. Both would help bolster confidence in, and the stability of, international markets as well as the credibility of global institutions like the G-20.

We are not yet living in the era of another Smoot-Hawley, the disastrous U.S. tariff act which is widely blamed for deepening the Great Depression, but the world's response to the global financial crisis has yet to develop fully. The steps countries take over the coming months to respond to the global financial crisis will help determine whether the world is destined to learn from or repeat past mistakes.

UPDATE: The Government of Brazil announced that it would suspend new licensing requirements for imports "In the face of massive opposition from Brazil's leading business associations."

Comments

[RoloTomassi]

And jeez, now we have folks pointing at the US for doing the same thing!

Hmmm...makes ya wonder...maybe this whole GLOBALIZATION effort and the theories and policies behind it are pure BULL$HIT.

[mulegino]

Whatever economic might or preeminence the U.S. achieved during the 19th and 20th centuries, and which is now vanishing piece by piece, was not due to embracing the policies of free trade, globalism, laissez-faireism, or resource grabbing colonialism. Quite the contrary-the American system, much of which was the brainchild of Alexander Hamilton, was based on tarrifs, open trade within the nation's borders, an industrial policy based on the national interest and strong emphasis on public works and economic-industrial projects that benefitted the nation as a whole-such as the transcontinental railroad.
Globalization's economic weapon is free trade and its formal principle the downward spiral of wages. Its consequences are the destruction of well paying manufacturing jobs, the pauperization of the middle classes, the privatization of profit and the socialization of risk. In a word, economic genocide.
It's monuments are the rusting steel mills of Pennsylvania and Ohio-the idle textile plants in North Carolina, the ghost towns of Michigan and the rural Midwest, or the once vibrant ethnic neighborhoods in upstate New York-once rows of charming, well kept houses, now home to crack houses and rats.
To paraphrase Tacitus, " They create a desert, and they call it-prosperity"

[Realization]

We must eliminate large imbalances like the U.S. trade deficit and foreign debt, and FDI.

WTO national treatment and MFN concepts are disfunctional. The U.S. is more open than its trading partners and has no industrial policy (mistakenly thinking it doesn't work) but is often accused of "protectionism".

To be clear, a country relatively more open is never "protectionist" even if that entails retrograde motion to achieve equal opportunity. The protectionist is the country with barriers, currency manipulation, a corporate system keeps foreigners at arms length, which is non-transparent, and where lobbying and influence buying are less effective than in the U.S.

The U.S. should apply the tactics of each trading partner on a 40-year sliding scale. If this does not take us back to using "Japanese rabbits are different" to force foreign pharmaceutical firms to form jvs and transfer technology, move it back. Goal should be rejuvenation of U.S. industry and eliminating the trade deficit after which the U.S. would maintain a surplus until past trade deficit amounts are wiped clean and debt paid off.

We need a "Federal Commission for International Trade Excuses" to come up with negotiating positions like the rabbit, long Japanese intestines, or the to work on Kansai Airport, "you have to understand the history and sociology of the fish and shrimp."

Under this, Japan, Korea, China, and the EU can not call the U.S. "Protectionist". We should fine them if they do.

[Shortyfuse]

Well the ent of the WTO , maybe there is a god after all.
Globalization is just the spread of the greed of capitalism on and overpopulated world. The only winners are the multinatilonal corporations.

[lvdragonlady]

I say, fine, America can do the same thing.
NO MORE trade agreements
Time to go back to making American and buying American.

[hey0there]

Didn't read the whole article, but its painfully obvious that our playing in the 'global economy' has almost cost us our country.

We need to step waaaaaaaaaay back for a few years (after our recovery, of course) and make sure we know exactly what we are doing the next time we decide to dabble in it.

[americaforme]

Oh in other words the USA is in the market to loose on a regular basis industries, jobs outsourced, poor food quality, and all the other disadvantages of(free trade). Patriots (of we the people) better standup and yell no way to Wall St.. All the fancy words will not put food in the American peoples mouths, when all the jobs are gone.

[Realization]

There are advantages to free trade but it is an imperfect system in which the U.S. gave up more than it gained for a number of reasons. We kept markets open in the cold war so Japan, etc. could have thriving economies to ward off communism. But it has long been too imbalanced. We have been taken advantage of due to arrogance (the U.S. is smarter, capitalism is more creative, we are ahead in tech) and stupidity (economists saying it is ok to run trade deficits, that we are better off with open markets even if it is one way because consumers get cheaper goods - with little to no consideration for job loss or loss of industrial capability).

To correct it, we have to decide to re-industrialize, look for the best tech, and give support and some protection to U.S. industries. It's possible. We can do it in a way to minimize foreign complaints but are probably not that smart. So just take the heat. Industries like steel and shipbuilding (not much left) are still critical for defense. The Big Three should be given incentives to become more American again and helped to become world beating companies. Toyota will never be American. But we can get more benefit from its plants here.

[jeffrey678]

HAVE YOU NOTICED THAT THEY NO LONGER PROMISE ANY BENEFIT FROM FREE TRADE? NOW THEY WILL TRY FEAR FOR MOTIVATION!