G-20 countries and protectionist measures

Once in every six months, the WTO, together with the OECD and UNCTAD, prepares a report on G-20 countries’ adherence to their pledges to resist implementing trade and investment restrictions during the current financial crisis.

The G-20 countries comprise the USA, Canada, Mexico, Brazil, Argentina, China, Japan, South Korea, India, Indonesia, Russia, Turkey, EU, Germany, France, UK, Italy, Saudi Arabia and Australia.

The latest report notes that the use of new trade restrictions among the G-20 leading economies has slowed down since the previous report was released. However, the continued build-up of protectionist measures effected during the onset of the crisis has been noted to be a source of concern due to their potential to worsen global problems, particularly in the light of announcements from the heads of international finance institutions that global economic recovery is still far from being assured.

Although this report comes since the G-20 leaders at their annual summit this year extended their earlier pledge to refrain from issuing new protectionist policies and to rollback those instituted since the start of the crisis, the report states that the long term build-up of trade restrictions since the start of the crisis as well as increasing frictions at a time of continuous economic difficulties still warrants further action from the world’s major developed and emerging economies.

“G-20 governments need to redouble their efforts to keep their markets open and to advance trade opening as away to counter slowing economic growth,” the report recommended.

Protectionist measures are measures taken by governments to restrict or restrain international trade, mostly to protect local businesses and jobs from foreign competition. The can be in the form of import tariffs, quotas, subsidies or tax cuts to local businesses and direct state intervention.

The report found that 71 new trade restrictive measures have been imposed since mid-May 2012, when the WTO issued its last report on G-20 trade measures. The previous report had recorded 124 new restrictive measures during the seven months between October 2011 and May 2012. Initiation of anti dumping investigations and increasingly stringent customs procedures were the most prevalent among the new restrictions. Fewer export restrictions had been introduced during past five months, which is noteworthy as such restrictions can affect global prices.

With the Eurozone countries still not out of the woods of the financial crisis, heads of IMF, World Bank, ILO, the OECD and the WTO had met recently with the French and German Heads of State to discuss ways to boost growth and competitiveness within the Eurozone.

In a joint statement with heads of OECD and IMF, the German Chancellor had said that the prospect for economic growth is not as big as they would wish and that due to modest growth prospects and considerable uncertainty, investor and household confidence have not yet returned to pre crisis level. It was also noted that the world economy is slowing down even in the emerging economies giving rise to “protectionist temptations”.

Recently, the French Minister of Industry had promoted a “buy France” concept, which the WTO Head had described as “patriotic protectionism”.

The WTO Chief, while noting that increased trade liberalisation is another key component in stimulating economic growth, had said that unemployment rates being too high, in order to create jobs, there needs to be demand and 90 per cent of the demand will come from outside of Europe.

He had also said that “in the next five years, the way to go out and create jobs is to seek out growth where it exists, that means in the developing countries and in the emerging countries, more specifically. This also means that markets remain open or open up more.”

The tables appear to be turning from developing countries seeking European markets to European countries seeking developing country markets.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)