Saturday, June 23, 2012

Protectionism - Fact or Fiction?

In yesterday's post I had depicted the level of protectionist measures in G 20 countries. The focus of the G-20 Summit which recently concluded in Mexico was on a plethora of pressing issues  concerning the global economy I found the declarations on trade, protectionism and WTO, not entirely surprising, but interesting.

The Los Cabos Growth and Jobs Action Plan reaffirmed its resolve against protectionism in a brief reference:
We reaffirm our commitment to resist protectionism in all forms and promote open trade, and will take active measures to reduce the number of WTO inconsistent trade restrictive measures and resist financial protectionism.
The more detailed analysis of the issue of trade, protectionism and multilateral trade was found in G 20 Leaders Declaration after the Summit:

26. We are firmly committed to open trade and investment, expanding markets and resisting protectionism in all its forms, which are necessary conditions for sustained global economic recovery, jobs and development. We underline the importance of an open, predictable, rules based, transparent multilateral trading system and are committed to ensure the centrality of the World Trade Organization (WTO).


28. We are deeply concerned about rising instances of protectionism around the world. Following up our commitment made in Cannes, we reaffirm our standstill commitment until the end of  2014 with regard to measures affecting trade and investment, and our pledge to roll back any new protectionist measure that may have arisen, including new export restrictions and WTO inconsistent measures to stimulate exports. We also undertake to notify in a timely manner trade and investment restrictive measures....


30. In line with the Cannes Communiqué, we stand by the Doha Development Agenda mandate and reaffirm our commitment to pursue fresh, credible approaches to furthering trade negotiations across the board. We will continue to work towards concluding the Doha Round negotiations, including outcomes in specific areas where progress is possible, such as trade facilitation, and other issues of concern for least developed countries. We urge progress  in streamlining WTO accession procedures for the world’s poorest countries.

31. We support strengthening the WTO through improving the way it conducts its regular business, and its dispute settlement system. We also direct our representatives to further discussions on challenges and opportunities for the multilateral trading system in a globalized economy."
The many "positives" from this Declaration:

1. The recognition that rising protectionism is an issue and it needs to be tackled within the multilateral trading system.

2. The reaffirmation of the principles of multilateralism and a rule based, open transparent system which promotes growth and jobs. The fear of reversion to "trade wars" and "tariff wars" seem to be allayed if the declaration is any indication. The severe economic crisis being faced by the major economies has not led to a formal recognition to raise protectionist walls and this was reflected in the tenor of this declaration.

3. A glimmer of hope for the Doha Round and an indication that the "single undertaking" approach may be replaced by a more pragmatic, outcome based approach in areas where progress is possible. The views on the WTO website of Joost Pauwelyn on a five point formula to revive multilateralism which included reconsidering the "single package rule" echoes similar views.

4. Recognition of the importance of transparency and notifications in the WTO. This would enhance the detection of WTO inconsistent measures considerably. Today, there are countries that are extremely transparent in depicting their laws, rules and notification even in terms of access on the internet while others are not so open. A standard of transparency that enhances compliance has to be brought in.

5. The resolve of strengthening of the WTO in the midst of protectionism is encouraging. The G 20 does not see the WTO as a threat to domestic, sovereign decision making even in the face of increasing pressures to turn protectionist. They see the WTO as an ally in an open, multilateral system.The mandate here seems to be to find ways to strengthen the  WTO including the way it would meet challenges of a globalised economy.

However, there are a few concerns in this context. Are these declarations translated into action? We heard similar proclamations after the 8th Ministerial Conference of the WTO but protectionist tendencies did not subside thereafter. Is it easier to proclaim one's allegiance to free trade, reduction of barriers and multilateralism but in actuality practice protectionism? Is it just "politically" correct to stand by multilateral trade rules, reduction in barriers and transparency but extremely difficult to implement? This is compounded by the fact that the interpretation of what constitutes protectionism is highly contested. Countries justify their measures as being non-protectionist and in conformity with WTO rules. It enters into the quagmire of complex judicial interpretation of the labyrinth of WTO rules and dispute settlement. This is often time consuming and ineffective. As disputes proceed, countries continue to have these measures in force. Then, there is the issue of compliance and what constitutes compliance to a decision of the Appellate Body which has decided against a measure. Hence, at times, countries do get away with protectionist measures which are antithetical to WTO obligations.

One would have to wait to see if the spirit of this Declaration translates into credible action.

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