Home / Money / Global recovery efforts can be affected by protectionist policies

Geneva: Protectionist policies could hold back global economic recovery and weaken key industries long after the current crisis ends, the World Trade Organization (WTO) said on Monday.

In a joint report with the United Nations Conference on Trade and Development (Unctad) and the Organisation for Economic Co-operation and Development (OECD), WTO said most leading economies have invoked “trade defence mechanisms" to weather the downturn.

“The fiscal and financial packages introduced to tackle the crisis clearly favour the restoration of trade growth globally, but some of them contain elements that favour domestic goods and services at the expense of imports," the agencies said.

They warned corporate bailouts and other steps could “create a legacy of uncompetitive industries and sectoral over-capacity that will continue to generate protectionist pressures even after economic activity picks up again."

The report, prepared for the Group of Twenty (G-20) leaders’ meeting later this month in Pittsburgh, projected the recession would reduce world volumes of merchandise trade by 10% this year, and push foreign direct investment 30 to 40% lower. The agencies concluded that so far major economies had avoided “a descent into high-intensity protectionism" but warned policies adopted to date could easily be amplified alongside more job losses in the years to come.

“The main risk is that G-20 members will continue to cede ground to protectionist pressures, even if only gradually, particularly as unemployment continues to rise," they said.

“The danger is of an incremental build-up of ‘sand in the gears´ of international trade that could aggravate the contraction of world trade and investment and undermine confidence in an early and sustained recovery of global economic activity."

WTO, Unctad and OECD urged world leaders to repeal national stimulus measures and instead turn their focus on boosting international commercial and investment flows through a new multilateral trade deal.

Earlier this month, trade ministers meeting in New Delhi pledged to complete the Doha Round accord by the end of next year.

“A collective decision by G-20 members to bring the Doha Round to a rapid conclusion would be well received by other WTO members and send an unambiguous signal that protectionist measures are not the solution to this crisis and that measures taken to combat the crisis will be quickly unwound," they said.

“Concluding the Round will substantially narrow the scope for introducing new trade restrictions or raising existing ones," the report concluded.

A Doha deal could give the global economy a boost of $300 billion (Rs14.6 trillion) to $700 billion a year.

The report coincides with meetings of senior officials in Geneva.

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