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Trade down, time to talk

india Updated: Jul 22, 2009 22:30 IST

Hindustan Times
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The World Trade Organisation sees an opportunity to revive the deadlocked Doha Round in the global meltdown that, it reckons, will see merchandise trade decline by 10 per cent this year. In its World Trade Report for 2009, the principal proponent for free trade suggests allowing tariff and non-tariff barriers in controlled doses so that countries do not get sucked into a vortex of protectionism during an economic crisis. So it argues for tariffs, quotas, and anti-dumping and countervailing duties to counter increased imports deemed injurious to domestic industry. These are precisely the trade walls the WTO was created to bring down.

The climbdown is tactical. Without these safety valves built into global trading rules, the WTO feels trade disputes could spin out of its hands. The contingency measures it is proposing give economies temporary relief from import competition and time to adapt, help deter injurious actions employed by trading partners, and assist in preserving world trading peace. The use of the trade warrior’s classic arsenal to keep that peace is an admission that governments need elbow room when political pressures build against widespread job losses. But this does not come without a cost. “First, in the absence of market failures, trade restrictions will cause losses in economic welfare. Second, flexibilities may be used to backslide on previous commitments,” the report points out. These risks give the WTO reason to scale up its ambitions. It is arguing for deeper trade opening commitments from governments, which should be attainable if they have the flexibility of contingency measures. Agreements that allow for unforeseen circumstances are less fragile when the chips are down, as they are now. “Too much flexibility may undermine the value of commitments but too little may render the rules unsustainable,” says WTO Director-General Pascal Lamy.

Countries like India, which are in eyeball-to-eyeball conflict with the West on greater market access, get a bigger pile of bargaining chips at the WTO negotiations if flexible trading rules gain currency. We need to see they do. Outside the WTO, with less than 2 per cent of the world’s exports, India’s voice against protectionist tendencies in the US does not carry.