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Wto - New Wave Of Protectionism Could Deepen The Global Slump

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WTO warns against protectionism amid economic slump

Pascal Lamy, the director-general of the World Trade Organisation said trade flows would shrink by 10% in 2009

guardian.co.uk, Wednesday 22 July 2009 17.54 BST

The head of the World Trade Organisation (WTO) warned today that a new wave of protectionism could deepen the global slump as he announced the biggest contraction in trade flows since the Great Depression of the 1930s.

Pascal Lamy, the director-general of the WTO, said trade would shrink by 10% in 2009 but said countries should resist the temptation to put barriers around their domestic markets.

"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", Lamy said as he launched the WTO's annual world trade report.

"Many governments have affirmed their intention to keep markets open, Lamy added. "But significant risks remain, and call for vigilance."

The WTO said the fall in global demand in late 2008 and early 2009 prompted by the bankruptcy of Lehman Brothers was having a profound impact on activity in global markets. "In the last few months trade has contracted more than at any time since the 1930s, reflecting the dramatic economic downturn provoked in the first instance by the collapse of major financial institutions", Lamy said.

"Trade growth will be strongly negative this year and we are unlikely to see sustained economic growth until 2010."

The WTO believes that the downturn in the global economy appeared to be slowing, with Asia leading the world out of recession. It predicted that the sluggish performance of the European economies would result in China overtaking Germany as the world's leading exporter next year. In 2008, Germany's exports were worth $1.47tn against $1.43tn for China.

Despite the avowed commitment of policy makers to keep markets open, research by the WTO and the World Bank has shown that at least 40 countries have resorted to protectionist measures permitted under WTO rules. Lamy said that while the erection of tariff barriers was not the cause of the Great Depression of the 1930s "a protectionist response to the pain of contraction is the recipe for deepening and prolonging an economic crisis."

The WTO report noted that trade rose 2% in real or volume terms in 2008 after rising 6% in 2007. "However, trade still managed to grow more than global output, as is usually the case when production growth is positive," it said. "Conversely, when output growth is declining, trade growth tends to fall even more, as is evident in 2009."

The share of developing country exports in world trade rose to a record 38% in 2008, the WTO said, although China – the leading emerging nation saw its export performance falter when global production came to a standstill at the end of 2008. Its exports to the United States rose only 1% over the whole year after growth of 14% in the third quarter.

China's commerce minister said on Tuesday a recovery in its exports could not be guaranteed, though he said today that overall its economy was stabilising and improving.

The WTO said the United States was the biggest importer in 2008, bringing in $2.17tn of merchandise goods, 13.2% of the total, followed by Germany with $1.21tn.

Edited by AvidFan

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