Protectionist measures

Thursday, 23 December 2010 00:47 -     - {{hitsCtrl.values.hits}}

A report released by the World Trade Organization (WTO) on developments in the international trading environment at the end of November warns of a risk of protectionist measures by many countries facing a possibility of high unemployment.

The report warns that such protectionist measures could potentially threaten worldwide growth and jobs.

The report notes that international trade which contracted in 2009 shows signs of bouncing back in 2010 and forecasts a 13.5% increase in volume from the 2009 level. As has been pointed out in many a report released by various international agencies, the global trade recovery is spurred mainly by some of the developing countries.

Developing countries’ exports have risen by 16.5% as compared to 11.5% for the developed industrialised countries. The highest recorded by regions is Asia with an increase of 27%. It is interesting to note the reversal in trends of the past.

Although both the developed and the developing countries are expected to achieve a slightly lower GDP growth in 2010,the GDP of developing countries is expected to rise by 7.1% while the growth in GDP of developed countries is expected to be a mere 2.7% increase.

The report predicts that unemployment will be an issue in many countries in the near future with youth unemployment increasing and quotes the ILO estimates that high income countries will not reach the pre-crisis levels of employment till about 2015.

However, it also notes that some of the emerging economies have already returned to 2008 employment levels.

According to the report, there were huge global imbalances with huge trade surpluses in some countries and equally huge deficits in some other countries, which have resulted in a demand for “protectionist measures at a time when the political consensus in favour of open trade and investment is already under strain from very high levels of unemployment in many countries”.

One of the important countries where such pressures are very visible is the US, where the House of Representatives has already passed legislation which could result in the imposition of countervailing duties on Chinese goods on the grounds that the low value of the Yuan acts as an illegal subsidy to exports.

The WTO is of the view as conveyed in the report under reference that restricted trade would not do much to solve the underlying causes of large trade imbalances, high levels of unemployment and disorderly currency movements. The report states that on the contrary, such restrictions “could easily promote retaliation which would seriously threaten jobs and growth worldwide”.

Another important point stressed in the WTO report is of relevance in the current context where a final product is a combination of parts manufactured globally.

The report notes that debates over trade balances might be operating under outdated and inaccurate assumptions since customs statistics indicate the point of origin of the shipment of the final product and not whether the product has been assembled with parts manufactured elsewhere.

The report suggests that the value of imports from a given source may be overestimated.

An example given is the Apple iPod imported from China. The product is imported from China at over US$ 100 when the value added in China to each unit was only about $ 12.

Stressing the need to prepare exit strategies to do away with stimulus and bailout measures introduced by governments during the crisis, the report notes the danger of a steady accumulation over time, of measures that restrict trade and investment and states that since the end of 2008, 1.9% of total imports were covered by new trade restrictions while only 15% of the temporary crisis response measures have been removed. This is not a healthy sign for development of international trade.

(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.)

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