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The World Trade Organisation's director-general, Pascal Lamy, issued a warning at the World Economic Forum in Davos, Switzerland, saying that if countries choose to implement protectionist policies in response to the state of the current global economy, then economic woes will only get worse.

In a recent interview with the Wall Street Journal, Lamy noted that, "one of the dangers of an economic slowdown can be protectionism". However, he said that though some countries in recent months had raised tariffs and increased subsidies, they had not yet breached the WTO rules.

Of course, the consequences of the US financial crisis are the main focus across the world at the moment. Still, there have been increasing concerns that dire economic situations might prompt nations to implement inward-looking policies to protect their industries.

According to the International Monetary Fund, the financial crisis slashed the world economic outlook this year, allowing it to grow only by 0.5 per cent - the worst performance since World War II. Industrial nations are battling a severe recession while developing countries are getting dragged down further. Consequently, the IMF forecast that the volume of global trade would contract 2.8 per cent, compared to the expansion of 4.1 per cent last year.

The shrinking of global demand may prompt some nations to put up barriers to protect their local industries when things worsen. Even though some countries have promised that they won't be doing this, the prospects don't look good.

The United States, widely known as the champion of free trade, on Wednesday triggered concerns that it might resort to an inward-looking trade policy. The US government included an expansion of the "Buy American" provision in its US$825-billion (Bt28.8-trillion) economic stimulus plan with the hope of jolting its economy out of the worst crisis since, perhaps, the Great Depression.

The expansion of the Buy American provision, which gives preference to local products over foreign goods in government projects, had repercussions on global trade and greatly worsened an already dire situation in the 1930s.

Although Washington has yet to be specific about the plan this time around, the European Union has already come out with a warning that the United States will not get away with protectionist measures easily.

"The one thing we can be absolutely certain about is that if a bill is passed that prohibits the sale or purchase of European goods on American territory, we will not stand by idly and ignore it," European Commission trade spokesman Peter Power told journalists in Brussels recently.

Even without the expansion of the "Buy American" provision, the global financial crisis has already put a strain on the relations among major economies. The Sino-American relations under President Barack Obama had a rocky start when US Treasury Secretary Timothy Geithner accused Beijing of manipulating its currency during his Senate's confirmation.

At the economic forum in Switzerland this week, Chinese PM Wen Jiabao blamed his country's economic woes on US-led financial institutions, suggesting "a lack of self-discipline" and "blind pursuit of profit".

Though economic stimulus plans tend to come with conditions that local goods be used in government contracts, countries should try to avoid protective measures because they could trigger a rising wave of protectionism. If that happens, these measures will only exacerbate the crisis as industries end up getting inhibited from flourishing as trade flows get more or less regulated by the US.

Unfortunately, history has already shown us that no one emerges as the winner with these measures. Poorer nations will suffer because many of them rely on exports. And eventually, the spirit of creating free and fair trade as a source of sustainable growth will die in the long run.