Russia, China and US breaking promises over trade protectionism, World Bank report claims

AT LEAST 17 of the 20 major nations that promised at a November summit to avoid protectionist steps that could spark a global trade war have violated that promise, a World Bank report has claimed.

Russia, the US and China enacted measures to limit the flow of imported goods, it says. The report underscores a “worrying” trend toward protectionism as countries rush to shield their ailing domestic industries.

It comes in the same week that Mexico vowed to put new restrictions on 90 US products. That action is being taken in retaliation against Washington for its recent cancellation of a programme that allowed Mexican truck drivers the right to transport goods across the US, illustrating the tit-for-tat responses that experts fear could grow in the coming months.

The report comes ahead of a summit in London on April 2nd, at which the heads of state from 20 industrialised and developing economies will seek to shape a co-ordinated response to the crisis. Their inability to keep their November promises is another indication of how difficult it will be for any agreement reached next month to be implemented on a global scale.

Protectionist measures may also sharply worsen the collapse of world trade, which the World Bank said is facing its steepest decline in 80 years.

“Leaders must not heed the siren song of protectionist fixes, whether for trade, stimulus packages or bailouts,” said World Bank group president Robert Zoellick.

Noting that protectionism is widely viewed as having deepened and prolonged the Great Depression, he added: “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.”

The bank said that, since last November, many nations have imposed a total of 47 measures that restrict trade at the expense of other countries.

The most obvious trade restrictions – raising tariffs, or taxes on imports – represent only about one-third of all measures. Some countries are taking a direct approach.

Ecuador, for instance, has raised tariffs on over 600 items, but most are taking more creative steps that fall into the grey area of what is considered legal under international trade law.

Argentina, for example, has put new licensing requirements on car parts, textiles, televisions, toys, shoes and leather goods that create a new layer of bureaucracy for overseas exporters. The European Union announced new export subsidies on butter, cheese and milk powder. China and India have increased the tax rebates for domestic exporters, which has been seen by critics as providing a stealth subsidy that makes their products unfairly cheaper abroad.

Some measures, the report concludes, may distort global production for products like cars and trucks. National bailouts and subsidies proposed worldwide for the car industry, the World Bank said, are now totalling $48 billion globally, with aid pouring out from governments including the US, France, Canada, Germany, Britain, China, Argentina and Brazil. That could prevent the natural readjustment of the industry, which many experts say is greatly overcapacity, allowing car makers to continue to produce more cars than consumers need.

However, the report noted that current trade laws are making it tougher for nations to take the more sweeping measures that triggered the trade wars of the 1930s.

The era of globalisation has made countries more interdependent than before, with supply chains for a car made in China or a plane made in the US now often relying on parts and components manufactured in many other countries.

That has led to a new measure of caution when erecting trade barriers. Additionally, global treaties have made it more difficult to enact draconian barriers. – (Washington Post service)