Trade barriers will not boost local economies

The latest figures released by the World Bank show that trade protectionism is on the rise amid the current global financial crisis. The World Bank study shows that 17 out of the G-20 developing countries have implemented restrictive trade measures. The report released in Washington on Tuesday said that since G-20 leaders signed a pledge in November 2008 to avoid protectionist measures, several countries, including 17 of its own members, have implemented 47 measures that restrict trade at the expense of other countries.

The World Bank study added that since the beginning of the financial crisis, officials have proposed and/or implemented roughly 78 trade measures, according to the World Bank's monitoring list of trade and trade-related measures.

Of these measures, 66 involved trade restrictions, and 47 trade-restricting measures eventually took effect.

The effects of these measures are likely to be minor relative to the size of unaffected markets but they have a significant negative effect on particular exporters shut out of certain markets.

"Leaders must not heed the siren-song of protectionist fixes, whether for trade, stimulus packages, or bail-outs," said World Bank Group President Robert B Zoellick.

"Economic isolationism can lead to a negative spiral of events such as those we saw in the 1930s, which made a bad situation much, much worse."

Although the effects so far of these protectionist measures are indeed probably minor relative to the size of unaffected markets, they will be of considerable importance for particular exporters being barred from protected markets, the World Bank study shows.

Tariff increases comprise only about a third of these actions across the board, but they account for half of such measures in developing countries. For example, Russia has raised tariffs on used autos, and Ecuador has raised tariffs on more than 600 items.

Non-tariff measures, said the report from the World Bank, include such policies as Argentina's imposition of non-automatic licensing requirements on auto parts, textiles, televisions, toys, shoes and leather goods, and Indonesia's requirement that five categories of goods (including garments, footwear, toys, electronics, food and beverages) will be permitted for import at only five of the country's ports and airports.

The rise of trade restrictive measures is a worrisome issue, especially if countries view that such measures are an answer to the current economic doldrums.

First of all, trade restrictive measures are not desirable, especially when the world is in need of policies and programmes that will boost trade across borders. While countries are trying to boost consumer confidence at home to stimulate domestic spending, governments should at the same time try to bolster transactions by promoting the exchange of goods between nations.

Protectionist measures not only distort the market, they also dampen the prospects of economic growth for all nations. Free international trade can help upgrade the wellbeing of people in all countries. In addition, history has always shown that trade restrictive measures are not the answer to boost economies.

Besides these factors, the rise of trade restrictive measures will adversely affect the World Trade Organisation's trade liberalisation talks. In fact, developing nations will benefit more from the liberalisation agreements under the Doha Round of talks because they will be able to export more agricultural products if all member countries agree to cut unfair farm subsidies. The rise of protectionism runs against the spirit of the WTO.

The release of the new World Bank report coincides with the G20 meeting in London early next month, when leaders of the main developing nations meet to seek ways for a coordinated plan to end the worst global economic crisis in generations.

The leaders of the G20 countries represent 85 per cent of the world economy, and their people and the rest of the world will look to the London meeting to see what message of hope the group will come up with.

The G-20 meeting must send a strong message to the world that one of the measures to prevent the worsening of the current crisis is to forestall any and all pressure for protectionist policies. Trade barriers will only have an adverse impact on the global economy, as the Great Depression of the 1930s has shown us.

The public must not expect anything less than such a message from this high-profile meeting. World leaders must show their willingness to pursue a coordinated effort to find a way out of the crisis.