The World Trade Organization (WTO) said on Wednesday that downside risks and uncertainties for the global economy are now growing, global activity is slowing down, economic performance continues to be uneven across countries, high debt levels and financial volatility are rising, high unemployment levels persist in many countries, and confidence has fallen sharply recently.
“These risks are aggravated by perceptions in markets that governments’ responses to these challenges have been inadequate so far”, said the WTO in a recent report.
According to the WTO report the World trade has grown more slowly than expected in recent months. Developed economies have been hit by a number of problems ranging from the impact of natural disasters to issues related to national budgets, credit conditions, and sovereign debt crisis.
In light of the deteriorating economic situation, the forecast for world export growth in 2011 was revised to 5.8 per cent, down from the earlier estimate of 6.5 percent. Developed economies’ exports are expected to rise by 3.7 per cent and those from developing countries by 8.5 per cent, said the WTO experts.
Disappointingly weak growth in some G-20 countries and continuing macroeconomic imbalances globally are testing the political resolve of many governments to abide by the G-20 commitment to resist protectionism, as reaffirmed by the G-20 Leaders at their last Summit Meeting in Seoul.
Over the period under review, there is no indication that 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 financial crisis.
Moreover, there is a growing perception that trade protectionism is gaining ground in some parts of the world as a political reaction to current local economic difficulties – difficulties that trade restrictions are very poorly equipped to resolve, such as the case of currency fluctuations and macroeconomic imbalances.
There are various signs of a revival in the use of industrial policy to promote national champions and of import substitution measures to back up that policy. Unilateral actions to shield domestic industries, although appealing from a narrow short-term perspective, will not solve global problems; on the contrary, they may make things worse by triggering a spiral of tit-for-tat reactions in which every country will lose.
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 attention 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. Taking steps to keep up the process of trade opening is important in this context.
The pace of implementation of new trade restrictions by G-20 economies has not decelerated over the past six months. The number of restrictive measures (and those that have the potential to restrict or distort trade) introduced since the beginning of May 2011 has declined slightly to 108 down from 122 recorded during the preceding six months. Not all G-20 economies took trade restrictive measures, and some took the welcome step of introducing new measures to facilitate trade by, for example, reducing import tariffs. Around half of the total measures recorded over this period can be considered as trade restrictive.
According to the WTO there is a risk that, in the absence of clearer multilateral disciplines, governments may be tempted to use export restrictions to alter to their advantage the relative price of their exports or to expand production by domestic industries. More self-imposed discipline on the use of export restrictions and closer multilateral cooperation is needed to mitigate the impact of these measures on importing countries.
The global economy has entered a dangerous, uncertain phase after the encouraging signals of recovery seen at the end of 2010 and the beginning of 2011.
The WTO experts said that “the best way to further open trade in a global, predictable and transparent manner remains the multilateral route. It is the multilateral trading system that has helped countries navigate the crisis so far and resist protectionism”.
In a context of great economic uncertainty and rising global risks, it is all the more important that the process of global trade opening continues. For this to happen, G-20 Leaders, as well as other participants to the trade negotiations, need to show leadership, pragmatism, and determination to find a way out of the current impasse in the Doha Round. The forthcoming 8th Ministerial Conference provides a possibility to find a path forward.