Protectionism to rise after Doha talks fail, warns WTO

[BAK]

Protectionism to rise after Doha talks fail, warns WTO

By FRANCIS AYIEKO
THE EAST AFRICAN

Posted Saturday, January 3 2009 at 11:14​

Failure by the World Trade Organisation to secure a deal in the Doha round of negotiations by December 2008 is raising fears of an increase in protectionism among developed countries, whose economies have been hard hit severely by the current global economic crisis.

After the talks collapsed in July last year, with the United States, India and China failing to reach a compromise over measures to protect farmers in poor countries, especially in Africa, the WTO indicated that it would call back trade ministers of the 153 member countries to Geneva in December to seek a breakthrough for a new trade deal.

As late as November 2008, WTO director general Pascal Lamy was still hopeful a deal could be reached before the end of the year.

But mid December, Mr Lamy announced that he had decided against calling back trade ministers because member countries were not showing enough political will to narrow their differences.

This was despite calls by the G20 group of big rich and emerging economies in November for members to reach a deal before the end of the year.

Commonly known as a Development Round, the Doha Round of negotiations, which started in Qatar in 2001, is expected to deliver a deal to free up global markets, cut farm subsidies and shore up the international trading system.

The main actors in these negotiations are grouped into three: developed countries such as the United States, Germany, Japan, Norway and Switzerland; emerging countries like India, China, Brazil, South Africa, Indonesia and Egypt; and least developed countries, which are mainly from Africa.

According to its proponents, the deal, when secured, will be the right defence against the increased protectionism expected in the wake of the severe economic crisis that has enveloped rich countries.

But recently, The Economist reported that the negative impact of the current economic recession on trade and capital flows — the two engines of global integration — is likely to force economies that have relied on exports to drive their growth to resort to protectionism.

The negotiations are generally aimed at more market opening, which might not be a priority for many countries currently feeling the pinch of an economic recession.

“It will be tempting to prop up domestic jobs and incomes by diverting demand from abroad with export subsidies, tariffs and cheaper currencies,” The Economist said.

Mr Lamy had raised fears of countries turning to protectionism when he said the current financial crisis may impact negatively on the WTO negotiations.

There may be resistance to open trade among countries. Some may not accept new trade regimes,” he said.

But he warned that the worst mistake countries can make during this global financial crisis is to shut out trade. This, he said, would be catastrophic as was demonstrated in the last economic crisis of this magnitude the Great Depression in the 1930s.

“We should keep trade open even as we continue with WTO negotiations. Emerging economies are growing mainly because of trade. In China, for instance, external trade is a major growth engine. If this is to be affected, then the whole world economy would be even more impacted,” he said.

The collapse of the talks in July and the subsequent failure by WTO to secure a deal by December is a major setback to developing countries like Brazil and India, and poor nations of Africa, which were counting on gaining greater access to rich consumers in the United States, Europe and Japan, for their farm goods and products of their basic industries.

For developing countries, experts say, opening up trade has always worked better than closing trade. Those developing countries that open up their trade have more often reduced the level of poverty than those that have not, says Mr Lamy.

A good example, he notes, is Asia where, aided by well-developed infrastructure, political stability, communications and capacity to trade on the global scene, the opening of economies by countries there has lifted over 400 million people out of poverty.

“The current economic crisis makes the conclusion of the Doha Round more necessary, more difficult. But I hope this situation won’t last too long,” said Mr Lamy.