Thursday, March 26, 2009

The world is slipping dangerously into protectionism, threatening to strangle global economic recovery, the World Trade Organization said.

In an alarm bell to WTO's 153 members, Director-General Pascal Lamy said free trade has suffered "significant slippage" this year as countries have erected new barriers to imports in the form of tariffs, subsidies and other measures designed to protect domestic industries.

Lamy said Thursday there was still no indication of a global descent into the trade wars that helped bring on the Great Depression. But he said "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."

Lamy's 47-page report obtained by The Associated Press lists dozens of government policies that are or would appear protectionist, if not illegal.

Trade has been a key driver of global economic expansion over the past three decades, growing faster than economic output and spurring gains in both rich and poor countries. But it is being hit hard by the economic crisis, with the WTO announcing earlier this week that commercial activity was expected to shrink by 9 percent this year, the worst collapse since World War II.

Protectionism will be one of the key issues when 20 of the world's leading economic powers meet in London next week. Those countries, which pledged in November in Washington to avoid spurring their economies at the expense of others, did not escape criticism in the WTO report.

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. But he said the trade effects of such packages needed to be considered as they can provoke tit-for-tat retaliation that hurts all economies.

Fears are rampant that amid the most dangerous economic downturn in 80 years countries will resort to the same shortsighted trade policies after the 1929 stock market crash.

The United States then led that charge by raising tariffs on hundreds of foreign goods, sparking worldwide retaliation and the devastation of international commerce.

Part of the danger is that global trade rules provide so much space for maneuvering that countries can inflict serious damage on foreign exporters without violating any agreements.

Most nations can legally raise their tariffs somewhat above the level they currently charge on imports. They can attach extra duties on foreign goods they suspect are being "dumped" at below-market value. Complicated import licenses can be required. Safety standards for imports can be set so high that trade stops. Rich countries have the option of subsidies.

"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."

The report praises efforts by some leaders, such as Brazilian President Luiz Inacio Lula da Silva, to reject or reverse decisions aimed at making it harder for companies in foreign countries. President Barack Obama was also commended for ensuring that "Buy American" provisions in the United States' $789 billion stimulus package comply with international agreements.

But its shame list was longer.

In the footwear sector alone, Argentina, Brazil, Canada, Ecuador, the European Union, Turkey and Ukraine have enacted or are considering measures designed to slow imports from China or Vietnam, the report showed.

Australia, Brazil, Britain, Canada, France, India, Russia, and the United States were cited for automotive tariffs, subsidies, credits, licenses or other changes deemed dangerous to trade.

Argentina, the 27-nation EU, Egypt, India, Indonesia, Malaysia, Philippines, Russia, Turkey, the U.S. and Vietnam were listed for protective steel regulations.

It was Lamy's second report on protectionism this year. Future reports are expected every two months as the WTO steps up its monitoring of the crisis.