WTO Urges Help to Weather Slump Without Curbing Trade

Governments should have contingency measures that help their industries survive the global economic slump without restricting cross-border commerce, World Trade Organization economists said.

Government policies will play “a big part” in influencing how severely the decline in global trade will hurt industries amid the worst financial crisis in 60 years, the economists said in the World Trade Report released today. The Geneva-based WTO expects merchandise trade to shrink 10 percent this year and “we are unlikely to see sustained economic growth until 2010,” Director-General Pascal Lamy said in a foreword to the report.

Protectionism is growing as governments try to shield their industries from the effects of the global slump. While the worst measures have been contained, efforts to prop up struggling industries and curtail unemployment are leading to policies that hinder free trade.

“In times of economic crisis, governments face pressure to adopt measures which may restrict trade and there are real dangers that such pressures, if not addressed adequately, can lead to a dangerous escalation,” economists led by Patrick Low said in the report. “Contingency measures can act as a safety valve in such instances and can play an important role in maintaining a rule-based system of multilateral trade.”

‘Safety Valve’

WTO economists examined measures in trade agreements that governments can use to combat economic difficulties. While steps such as applying safeguards and raising duties restrain trade flows, they also give governments flexibility when political pressure grows, the 172-page report says.

“Contingency measures may be thought of as a safety valve mechanism, a form of insurance or an instrument of economic adjustment,” said Lamy, who is in Singapore at a meeting of Asia-Pacific Economic Cooperation trade ministers.

These include applying safeguards, anti-dumping and countervailing measures, renegotiating tariff accords, raising import duties to their legal maximum levels and imposing export taxes. Some of these steps may strengthen the rule of law or enable governments to open their markets further than they would have otherwise, Lamy said.

While other actions give governments a “political margin of maneuver and can act as a safety valve when political pressures build,” they may threaten to curb global commerce, the report says. The “architectural challenge” is to find an equilibrium so trade deals are both credible and realistic, Lamy said.

Contraction Slows

“Well-balanced contingency measures, designed primarily to deal with a variety of unanticipated market situations, are fundamental to the effectiveness and the stability of trade agreements,” he said.

In a Bloomberg Television interview today, Lamy said trade is shrinking more slowly now than in recent months.

There is “some slowing down” of the global trade contraction, especially in Asia, which will probably bottom out first “and probably more vigorously than average” from the global slump, he said. “But I remain very cautious as we’re still not out of the woods.” link....