At the onset of economic recession in 2008, it was widely feared that most economies would take shelter in protectionist trade measures to shield domestic industry. G20, fearing the worst, declared during the Washington meet (November 2008), “not to turn inward in times of financial uncertainty.” The leaders of G20 reaffirmed their commitment in London (April 2009) and Pittsburgh (September 2009), and declared to follow it until the end of 2013 during the Seoul (November 2010) meet. Irrespective of the fears, world trade bounced back in 2010, providing interesting insights into the changing global trade patterns and raising unsettling questions.
It is evident that G20 members declared not to take measures that are WTO-inconsistent. But what about WTO-consistent measures? Protectionist measures that are WTO-consistent predominantly involve trade remedy, border measures and exports measure. Trade measures comprise anti-dumping duty, countervailing duty and special safeguard duty. A recent report by WTO reveals that during April 2009-April 2011, 407 trade-restrictive measures have been initiated by G20 economies, including 212 trade measures. Further, the number of potentially trade-restrictive measures taken by G20 economies from mid-October 2010 to April 2011 increased to 122 from 54 during mid-May to mid-October 2010 that covers around 0.5 per cent of total world imports, and 0.6 per cent of total G20 imports. Export restrictions, including export taxes on agricultural products and quotas on metals and mineral products, have been predominant restrictive practices for the past one year mainly to contain inflation and favour domestic consumers.
World trade data present a different picture as the volume of merchandise trade increased 14.5 per cent in 2010 and world trade surpassed its peak level of 2008 in 2010. Counter-intuitive data make the protectionist measures appear as populist choices. According to Dadush, Ali and Odell*, the growth in the world trade is attributed to the resilience of the global trade that developed in the past two decades owing to following factors:
- Most economies of the world today have liberal trade policies that are not easy to reverse.
- The production structure of most industries has changed and spread across the globe and has increased the trade of intermediate trade. This structure makes the domestic industry dependent on imports to reduce cost of production and any import restriction harms the domestic producers along with the importers. For instance, Walmart spent a considerable amount on lobbying against punitive legislation on Chinese imports and currency.
- Consumers worldwide have also got used to more product variety that has been made available with increase in international trade. These economic realities have contributed to restoring trade levels to pre-recession period within a two-year span.
The contradiction of an increase in the WTO-consistent restrictions along with a rise in world trade raises the following question. Is it the WTO discipline or the changed contours of the international trade that rendered the protectionist measures ineffective? The issue will be resolved if there is evidence that WTO has contributed to changing the economic situation. The evidence on this is rather ambiguous as a study shows that multilateral trade agreements contributed to a mere 25 per cent of liberalisation of trade policies against 66 per cent by the autonomous liberalisation in the countries. On the other hand, studies have shown that WTO has a positive influence on world trade. The wavering interest of the members in the completion of the Doha Round casts further doubt on the faith in the multilateral system. An obituary of the Doha Round has already been written.
The economic recession has shown protectionism in a different light. On the one hand, economies are severely constrained in taking extreme measures either due to WTO compulsions or due to the integration of the economic interest of the domestic producers and importers. On the other hand, when it comes to furthering the globalisation process, economies are shying away from multilateral negotiations. Having learnt their ropes, it seems that countries do not intend to make commitments at the multilateral level that may severely limit their capabilities to follow populist policies in the future.
*Is Protectionism Dying, May 2011, The Carnegie Papers The author is Assistant Professor of Economics in IIT Indore
