Business World

Legal “safety valves,” allowing countries to suspend or waive trade commitments, can damage the global economy if abused for protectionist purposes, the World Trade Organization said on Wednesday.

In its annual World Trade Report, the WTO examined the use of “contingency measures,” a topic it said was particularly timely given fears of protectionism in the global crisis.

The global trade watchdog has been monitoring restrictive measures taken by countries — both those that violate trade agreements and those that are allowed under existing deals.

In the latest assessment, issued this month, WTO Director-General Pascal Lamy said governments were unfairly blocking trade in response to the downturn.

“Contingency measures are more likely to be used in difficult economic circumstances. However, the evidence cannot preclude the possibility that such measures are sometimes used as a protectionist device,” the WTO said.

“At a time of global crisis, a proliferation of such measures among trading partners would have adverse economic effects with few of the positive offsetting advantages that might otherwise by invoked to justify such measures.”

An analysis of the measures concluded that their design should aim to limit circumstances in which they can be used for protectionism and that their design should not undermine trade agreements.

The WTO noted it was easier to track the contingency measures analyzed in the report than to identify trade-restrictive measures or subsidies embedded in financial rescue and fiscal stimulus packages favored by rich nations and some emerging ones such as China and Brazil 500 fast cash.

TAXES AND TARIFFS

Protectionism can deepen and prolong an economic crisis even if it does not cause a downturn, Lamy said in an introduction to the report, noting that restrictive trade policies did not actually trigger the 1930s Great Depression.

“A seemingly attractive short-term solution of keeping production and consumption at home soon becomes a millstone around a nation’s neck, the more so when trading partners retaliate in kind,” he said.

The WTO examined the use of contingency measures such as safeguards, antidumping and countervailing duties, as well as measures such as renegotiating tariff commitments, export taxes and increases in tariffs to the maximum agreed ceiling.

Economic research showed that the use of such measures — especially antidumping — increases during downturns, it noted.

Antidumping is when a government imposes a compensatory duty on imports it says are being sold for less than they cost at home — and is a frequent cause of trade disputes.

In the latest such case, China plans to challenge antidumping duties imposed by the European Union on Chinese screws and bolts. 

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