WTO worried over protectionist measures due to global crisis

World Trade Organization (WTO) Director General Pascal Lamy today presented a “work in progress” report on the dangers of tit-for-tat protectionist measures due to the worsening global trade conditions.

Even as rich countries are providing tens of billions of dollars to their ailing industries, developing countries without deep pockets have been forced to raise their tariff barriers. “Protectionism could also provoke retaliatory action by others that would compound the damage caused,” he suggested.

The Indian government’s move to raise tariffs on some steel products as well as fresh restrictions on imports of some steel products figured in the report along with other rescue packages and state-aid provided by different members.

“The shortage of liquidity and disproportionate aversion to risk” has resulted in a shortfall of trade finance to the tune of $25 billion in November last year. Worse still, the cost of trade credit has been tripling in some emerging economies, he noted.

The confidential 14-page report submitted to members, a copy of which is with Business Standard, catalogues the range of “trade-restricting” or “trade-distorting” measures adopted by members in the face of uncontrollable financial tsunami that began on the shores of the industrialised countries last year.

While real trade growth is estimated at around 4 per cent last year, the global export volumes would be -2.1 per cent in 2009 based on the World Bank estimates. “Weaker economic growth” will have far-reaching ramifications for developing countries given their heavy dependence on global trade.

Several measures underlying the stimulus packages, such as “state aid” or “subsidy”, are bound to have negative slipover effects on other markets or introduce distortions to competition among financial institutions, the report says.

Besides, the ongoing turmoil in banks and financial markets has directly impacted international trade “through the tightening of liquidity, which affects the supply of trade credit by the main international banks”.

Due to the worsening conditions in the flow of credit among banks, international banks are not able to supply as much credit as demanded by traders at affordable prices, says Lamy.