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Experts certain of no return to protectionism
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10:29, July 28, 2009

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GENEVA: The sharp trade contraction during the economic crisis, closely matching the trend in the 1930s, has triggered widespread fears that the world could suffer a re-run of the destructive protectionism of that era.

Policymakers have said measures to curtail imports to save jobs at home could spark a repeat of the Great Depression, and political leaders have pledged not to restrict trade even as their governments raise tariffs and subsidies.

The ghosts of US Senator Smoot and Representative Hawley, whose 1930 Tariff Act prompted a wave of tit-for-tat trade retaliation that fuelled the tensions leading to World War II, stalk many a newspaper article and economic conference.

But economists are increasingly arguing that measures taken in the crisis do not herald a wave of protectionism.

"I do think that there are a number of countries that have flirted a bit with protectionism but I don't see in many countries anything like what was happening in the 1930s and certainly not in the United States," said Craig VanGrasstek, who teaches trade policy at Harvard and Georgetown universities.

Trade no longer plays a big part in the US public debate and President Barack Obama did not view it as an election winner, he told a meeting of the Agency for International Trade Information and Cooperation (AITIC) in Geneva on July 21.

Anti-dumping measures

The number of requests for anti-dumping measures - duties to compensate for unfairly priced imports - sought by US businesses is likely to fall to 12 in the 2009 fiscal year ending Sept 30, he said. That is half the 24 requests made in fiscal 2008 and a quarter of the average in the 1980s.

The US Congress has enacted some protectionism measures, such as a ban on Chinese poultry imports, now the subject of a dispute at the World Trade Organization (WTO), and reversing permission for Mexican truckers to transport goods within the United States.

But this does not represent a big increase in this kind of activity from Congress, VanGrasstek said.

"If you look at what's happening in the United States today we have less evidence for protection now than I have seen in previous recessions," he said.

Roberta Piermartini, one of the authors of a WTO report on trade safety valves like anti-dumping, said further increases in such measures could be expected.

But so far the number of contingency measures is running at a far lower rate than in 2000-02 in the aftermath of the Asia crisis, she said at the Geneva launch of the report on July 22.

Such measures are on the rise, but the rise is moderate, said Olivier Cadot, a professor of trade policy at the University of Lausanne.

"Even though anti-dumping is clearly open to manipulation by special interests the avalanche of trade remedy measures that was announced hasn't taken place," he said at the WTO launch.

"It is hard to avoid the impression that sometimes economists are crying wolf when we talk about trade protection."

One reason economists are more optimistic is that policy-makers have learnt from the errors of the 1930s, and the trading system built up after World War II, embodied in the WTO and its binding agreements, restricts countries' ability to raise tariffs and choke off trade.

Another reason is that trade flows, forecast by the WTO to contract a real 10 percent this year from $15.78 trillion in 2008, are already showing the first signs of recovery.

Exports from Japan, the world's fourth biggest exporter and importer last year, rose a seasonally adjusted 1.1 percent in June over May. The year-on-year fall was still a horrendous 35.7 percent but that was the slowest decline this year.

The World Bank has been one of the loudest voices warning against the dangers of protectionism.

"It's a potential danger... and one has to watch quite carefully to make sure things don't spin out of control," said Richard Newfarmer, World Bank representative in Geneva.

The monitoring of trade measures by institutions like the WTO and World Bank is putting the question of protectionism high on the international agenda and has restrained countries from taking more such measures, he told Reuters.

Dangerous period

But Newfarmer said the world was entering a dangerous period when an incipient economic recovery is helping trade recover, so that imports pick up as jobs continue to be cut.

"That's a potentially noxious mixture that has to be watched carefully," he said.

The WTO believes the worst is still to come in the crisis as unemployment rises further, Deputy Director-General Alejandro Jara said at the launch of the trade measures report.

"We've looked at the trends but we also can tell that the pressures will still be there for some time to come, so I don't think that in the WTO we are crying wolf or exaggerating too much."

Source:China Daily/Agencies

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