Protectionism amidst recovery

Arecent report of the World Trade Organisation, which has been monitoring trade and related developments since the end of the crisis, is generally positive on the prospects for open trade, although there are significant risks on the horizon. The report, which covers the six-month period ending May 2010, observes that many countries have resisted pressures to erect trade barriers. However, trade restraints of earlier periods remain, and there has been a marked reluctance to dismantle them. The WTO's two-point advice to countries — one, prevent further accumulation and two, exit from current restrictive practices — is unlikely to be acted upon in a hurry. The world economy has been recovering but the progress is too uneven to inspire confidence. The bigger emerging economies led by China and India are compensating for the lacklustre performance of the advanced economies. Merchandise trade is forecast to expand by 9.5 per cent in 2010, after an unprecedented decline of more than 12 per cent a year ago. Trade has an important role in anchoring the global economic recovery.

However, despite the universal acknowledgment of the efficacy of open trade in realising important socio-economic goals — such as economic growth and poverty reduction — policymakers have been unable or unwilling to look at the big picture.

In many countries, open trade has remained captive to short-term political and economic compulsions. At this juncture, the two biggest threats are: the persistently high unemployment levels in the advanced economies, and the high level of public indebtedness in many European countries. In advanced economies, unemployment is projected to stay close to 9 per cent through 2011 and to decline thereafter, but only slowly. Jobless growth has spawned protectionist tendencies in the United States. These include tighter visa rules for skilled persons and steps to make outsourcing less attractive for domestic companies. The continued failure to revive the nine-year-old Doha development round shows, above all, the collective failure of all countries to institutionalise multilateral trade rules under the aegis of the WTO. At their recent meeting at Toronto, the G20 leaders skipped their 2009 pledge to finalise the Doha round this year.

They, however, agreed to halve the budget deficit of their respective countries by 2013. This would certainly be good for their public finance, but in the absence of expansive government spending, these countries will need to look at exports for their growth. There is a fear that, in their bid to stay in competition, at least some of them would resort to unfair trade practices. Hindu News