Protectionism will ‘strangle’ recovery, warns WTO

Countries that are hampering free trade in the form of tariffs, subsidies and other measures could endanger international trade, warned the head of the World Trade Organization (WTO) Pascal Lamy, in a report on Thursday.

These measures, designed to protect domestic industries, will impact international trade and undercut the effectiveness of national stimulus plans, Lamy said in the report circulated to WTO members.

"The danger today is of an incremental buildup of restrictions that could 'slowly strangle' international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally," the report noted.

But he said the danger of protectionism was still not so high as to cause a global trade war, which was the case in previous economic downturns. In the era of Great Depression in the 1930s, the United States raised tariffs on hundreds of foreign goods, which had its repercussions all over the world, affecting international trade badly.

Lamy's report lists dozens of government policies that are or would appear protectionist, if not illegal. It speaks about examples of the measures countries are undertaking to protect their companies and economies -- from European import tariffs on Asian plastic bags to a ban on Chinese toys in India.

In March alone, South Korea raised import tariffs on oil; Mexico raised tariffs on 89 US goods; Ukraine slapped an extra 13 per cent tariff on all imports; the US raised duties on imports of Chinese steel pipes; and Argentina mandated a special license for toy imports.

The report raised a veiled attack on countries that are establishing trade barriers to protect parochial domestic interests. This will to deepen the crisis and prolong recovery, it noted.

Argentina, Brazil, Canada, Russia, Ecuador and Ukraine have recently raised import duties on shoes, mostly from China and Vietnam. Twelve countries have acted to help their automobile industries. The US, Brazil and France have handed out generous loans. India has required licenses and Argentina has set prices for importation of foreign car parts. Ten countries, and the EU, have raised tariffs on imported steel, the report elaborated.

"The main risk is that governments will continue to cede ground to protectionist pressures, even if only gradually, as long as the global economic situation continues to deteriorate," Lamy warned.

"In that case, the negative impact on trade will mount as the number of new measures accumulates. This will worsen the contraction of world trade and undermine confidence in an early and sustained recovery in global economic activity."

However, the WTO praised some nations for promoting trade. Argentina has eliminated export taxes on 35 dairy products. Brazil has expanded a programme to give loans to exporters. China has scrapped import tariffs on steel plates. The Philippines has cut tariffs on wheat and cement.

"More trade-policy initiatives of this kind, particularly if they were to be taken collectively by the major trading countries, would make an impact on a global scale," the WTO noted.

The report repeats the agency's recent analysis of trade trends, such as the WTO's prediction that global trade will shrink 9 per cent this year. (See: World trade to contract by 9 per cent this year: WTO). 

Lamy said fiscal stimulus and government bailouts should be welcomed in the current environment because they aim to reverse a fall in global demand and revive international trade in goods and services.

Speaking at the Lowy Institute for International Policy in Sydney earlier this month, Lamy warned protectionist measures by individual countries are unlikely to help in the recovery efforts.

''The domino effect of protectionism would be devastating. And this is why resisting protectionism and avoiding an aggravation of the current crisis is an imperative today,'' he said.

The next G20 Summit in London will be a test of the capacity of major economies to work together, hand in hand, in searching for solutions to pull the world economy out of a deeper recession.

US online gambling laws irk EU
The European Commission on Thursday said that US laws restricting online gambling went against WTO rules.

"It is for the US to decide how best to regulate Internet gambling in its market, but this must be done in a way that fully respects WTO obligations," EU trade commissioner Catherine Ashton said.

"I am hopeful that we can find a swift, negotiated solution to this issue," she added.

A commission investigation found that the US laws deny access to the US market unfairly under WTO rules and discriminate against foreign online gambling and betting companies.

While the commission said that the findings justified legal action before the WTO, it was preferable to tackle the issue directly with the new US administration.

Antigua and Barbuda, the small Caribbean state that is home to many online betting operations, have already lodged legal challenges against controversial US laws restricting Internet gambling.

The commission launched the investigation into the laws in March 2008 after receiving a complaint from the Remote Gambling Association, an industry organisation.