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Doha, amidst rising protectionism

G. Srinivasan
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The global slowdown poses a challenge to paring trade barriers. But the Doha Round is not without hope.

New energy industries have come under the subsidy scanner.
New energy industries have come under the subsidy scanner.

The Doha Round of trade liberalisation of goods and services, launched in 2001 by the World Trade Organisation (WTO), is in a limbo even after more than a decade. Achieving a Doha package encompassing 20 disparate subjects may be a daunting task in the short term.

Yet, possibilities abound, if the advance is made in small steps towards freer trade, and the G-20 leaders are resolute enough.

This calls for marshalling collective political will among countries not to succumb to protectionist pressures when times are tough, what with the global economy in a slowdown mode.

A just-published report by the Paris-based Organisation for Economic Cooperation and Development (OECD), the Geneva-based UN Conference on Trade & Development (UNCTAD) and the WTO on G-20 trade and investment measures sends mixed signals on the progress made in making the global trading system transparent, free and fair.

The report, recounting trade and investment measures by G-20 members from mid-May to October 2012, did concede that the global economy had encountered increasingly strong headwinds.

Output and employment data in many countries continue to disappoint.

Strong headwinds

In the face of these disturbing developments, the WTO Secretariat has lowered its forecast for world trade growth in 2012 from its earlier estimate of 3.7 per cent to 2.5 per cent.

The volume of trade growth in 2013 is now forecast to be at 4.5 per cent, still below the long-term annual average of 5.4 per cent for the last two decades.

Persistent high unemployment, turbulence in financial markets and a weak economic recovery exert intense pressure on governments to grant assistance to individual companies and preserve jobs, prompting the report to caution that G-20 governments could resort to policies or practices that discriminate against foreign investors or discourage outbound investment.

Stating that trade restrictions and inward-looking investment measures would only aggravate global problems and risk setting off reprisals, the report rightly warned the advanced and emerging economies not to buckle under pressure.

Since mid-May 2012, 71 new trade restrictive measures were recorded, the WTO reckons, covering around 0.4 per cent of G-20 merchandise imports or 0.3 per cent of world imports. The most frequent measures used continue to be trade remedy actions, in particular, the initiation of anti-dumping probes, followed by more stringent Customs procedures.

Restrictive measures

The trade coverage of the restrictive measures put in place since October 2008, excluding those that have been terminated, is estimated to be around 3 per cent of world merchandise trade and around 4 per cent of trade of G-20 economies.

The 71 new measures are adding to the stock of restrictions put in place since the outbreak of the global crisis in 2008. They include, among others, trade-distorting subsidies in agriculture and tariff peaks. The benefits of trade openness will be imperceptibly undermined in the process.

Cassandras of doom predicted that in the aftermath of the global financial meltdown and economic slowdown, the ghost of 1930s protectionism could return.

Although such a thing has not really happened, thanks to the universal tendency to cut down import duty, governments have found other ways to bolster their struggling industries.

Countervailing duties

The bailout of the auto industry in the bastion of free trade, the US, is one such instance.

Trade disputes over rising state-funded subsidies are escalating. Some of the subsidies are termed permissible, while the disputed ones take years to reach a settlement under the WTO set-up.

For more than a decade, China’s export juggernaut rolled along, as China extended ample support to its export industries, which included direct subsidies, tax breaks, inexpensive land and electricity, soft interest-bearing export credits and highly subsidised loans from state-run banks.

Interestingly, the number of fresh cases seeking ‘countervailing duties’ (CVDs) — which are levied on imports deemed to be subsidised by foreign governments — doubled between 2004-07 and 2008-11, trade analysts said, adding that several emerging economies had passed CVD legislation to enable future cases.

As many as 16 subsidy-related cases have been lodged by governments at the WTO since 2008.

The fact that many countries prefer to be dragged to the WTO dispute settlement machinery rather than desist from slapping countervailing duty to safeguard the interest of the domestic industry, speaks of the growing clout of this form of regulating unwanted imports.

Subsidised exports have been the bone of contention between developed and developing countries in the WTO negotiations on agriculture; the developing world finds such exports from the rich world distort global grain trade, as their governments cannot afford such subsidised export of their farm goods.

It is not only in agriculture — export subsidy is harming global trading nations but also in fisheries and passenger aircraft, with the latter figuring in the trans-Atlantic trade war between the US-led Boeing and the consortium of European countries, Airbus. The matter has been hanging fire in WTO dispute settlement body for several years.

New energy industries such as bio-fuels, solar and wind power too come under the subsidy scanner, though finding dependable data on subsidy payout, particularly from countries such as China is a huge challenge.

Trade experts contend that even if subsidies to new sectors such as renewable energy are whittled down, the issue of trade-distorting interventions by governments the world over to safeguard their domestic industries as also agriculture continue to be a sore point in multilateral trade talks.

Ironically, the fact remains that restrictions on imports would be felt in reduced export competitiveness, as production chains turn more and more global, say policy pundits.

(This article was published on November 5, 2012)
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Comments:

This is an excellent analysis of growing trade protectionism. Global economic recovery requires freer trade and not protectionism as export of one country is import of others. Global production network will make it difficult to help domestic industries by protectionism. It's time G-20 countries came forward and cocluded the Doha round...which will help world trade and ensure faster recovery.

from:  Ritesh Kumar Singh
Posted on: Nov 6, 2012 at 14:28 IST
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