OPINION

Protectionism in check

Although the global economic recovery after the recession has been fragile and uneven, trade among countries has bounced back after a sharp decline a year ago. Between October, 2008 and January, 2009, global goods trade dropped by nearly 20 per cent. Several factors that were behind last year's plunge assume significance in the context of the ongoing recovery. Initially, supply side factors, notably the complete drying up of trade finance and protectionism, were blamed. A more recent analysis has attributed the fall in merchandise trade to a decline in demand, amplified by the synchronised downturn in nearly all countries. The globalised supply chains transmitted the weak demand signals rapidly. The relatively quick recovery corroborates the view that a precipitous fall in demand in the wake of the financial crisis was the principal factor. Consumers across the globe, shocked by the intensity of the crisis, put off their purchases. With the global economic climate improving, they are returning in strength. The impressive turnaround in the export performance of many developing countries, notably China, is due to the revival in demand at the global level.

Protectionism was a major threat during the downturn. However, a new report, prepared jointly for the G20 countries by the WTO, the Organisation for Economic Co-operation and Development, and the United Nations Conference on Trade and Development, points out that the feared surge of protectionism did not materialise. Even more significantly, in the recovery phase, most countries have successfully managed the political process of keeping protectionism at bay, despite the high unemployment rates and the shrinkage of employment opportunities. Over the past six months, the number of restrictions on international trade has dropped sharply. A majority of the new curbs relate to industries such as minerals and base metals that have traditionally relied on such measures. There has been no spurt in the emergency measures to block imports such as anti-dumping laws and recourse to safeguards mechanisms for goods deemed unfairly priced or subsidised. There are many critics of the report who contend that protectionism exists but in less traditional forms, as for example the bailout of financial institutions and car companies and the "Buy American" home procurement rules in the United States. The inability to move ahead with the Doha round also shows a lack of commitment among industrialised countries to free trade. The consensus is that protectionism is nowhere near its peak levels of the 1930s but cannot be discounted totally in today's world.