G-20 Nations Failing To Honour Protectionism Pledges

by Ulrika Lomas, Tax-News.com, Brussels

27 October 2011

Disappointingly weak growth in some G-20 members is testing the political resolve of many governments to resist trade protectionism, says a new report from the World Trade Organization, the United Nations and the Organisation for Economic Cooperation and Development, which examines trade and investment measures implemented in the third quarter of 2011.

The report examines whether G-20 leaders have honoured pledges made at their last Summit meeting in Seoul on November 11-12, 2010, to resist all forms of protectionism. The report finds that due to the protracted recovery being experienced by advanced nations, there has been limited progress on opening up international trade and in some areas increased protectionism.

“There is no indication that, over the past six months, recourse to new trade restricting measures by the G-20 as a group has slackened nor that efforts have been stepped up to remove existing restrictions, particularly those introduced since the onset of the global crisis. Indeed, the pace of implementation of new export restrictions has accelerated over the recent period. Moreover, there is a growing perception that trade protectionism is gaining ground in some parts of the world as a political reaction to current economic difficulties,” the report states, adding:

“Unilateral actions to shield domestic industries and jobs from international competition, although appealing from a narrow short-term perspective, will not solve global problems, and on the contrary may turn the situation worse by triggering a spiral of tit-for-tat reactions in which every country loses."

“The situation is not yet alarming, but it is clearly adding to the downside risks to the global economy. There is a need for urgent action by the G-20 to prevent any further deterioration in their collective trade policy stance and to place their faith in open markets and the benefits of freer trade at the heart of their economic policies to re-boot growth in the world economy.”

On the positive side, a number of trade facilitating measures were reported to have been introduced, particularly in the reduction in number, or temporary exemption of import tariffs, and the streamlining of trade procedures. “The pace of removal of previous trade restrictive measures seems to be increasing, but still remains slow, which adds to the concerns about the accumulation of restrictive measures,” the report warns.

While trade protectionism is reported to be of concern, the report commends measures taken in relation to international investment:

“G-20 members have on the whole continued to honour their pledge not to retreat into investment protectionism. Most of the few investment policy measures taken during the reporting period remove restrictions to international capital flows and improve clarity for investors. However, there have also been a few instances of new restrictions.”

“G-20 members have discontinued almost all support measures in response to the financial and economic crisis and are slowly winding down financial positions acquired during their earlier interventions. However, the recent resurgence of turbulence in financial markets and weakening growth prospects could create pressure for new government measures to support companies.”

“At a time when the global economy urgently needs a boost from private investment to generate growth and jobs, short-term crisis management will need to be coordinated with efforts to boost long-term productive investment. Ensuring that any future crisis response measures are as transparent and non-discriminatory as possible will help limit damage to the functioning of global capital markets.”

The report urges G20 governments to continue efforts to strengthen multilateral cooperation to find global solutions to current economic difficulties and risks. In particular, the report calls for nations to continue to capitalize on the multilateral trading system as an insurance policy against trade protectionism.

“The forthcoming G-20 Summit in Cannes and the 8th WTO Ministerial Conference in December could send a strong signal about the need to keep markets open, resist protectionism, and preserve and strengthen the global trading system so that it continues performing this vital function in the future,” the report states.

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