Stepping Back from Trade Protectionism: the Time is Right

International trade law is often considered one of the more successful areas of international law since it benefits from robust enforcement and dispute mechanisms. However, international trade law faces its own challenges, and a new one may be imminent: the elimination of protectionist sentiment and measures that governments around the world have adopted in response to the global financial crisis. Governments, particularly the G20[1], have acknowledged the issue of rising protectionism.[2] However, in light of several reports examining the measures adopted by G20 governments, the G20 leaders’ commitments following their most recent meeting in September demonstrate that they are not moving fast enough, or far enough, to reign in protectionist tendencies.

As we are all well aware, the international credit crisis, which came to the fore in 2008, resulted in the collapse or near-collapse of financial institutions and sources of credit for businesses around the world – causing trade levels, investment and global output to plummet, and thousands of jobs to disappear. In the fall of 2008, there were fears that a depression similar in intensity to the Great Depression of the 1930s was looming. In response, many states announced significant injections of capital into troubled financial institutions and industrial sectors to avoid their collapse, and to facilitate access to credit by industry. They also adopted measures to stimulate domestic demand.

Global leaders, particularly those representing the G20 group of countries, also moved to take a coordinated approach to the crisis. The G20 leaders first met in November 2008 for a Summit on Financial Markets and the World Economy, where they issued a Declaration in which they promised to “work together to restore global growth and achieve needed reforms in the world’s financial systems”.[3] As part of this declaration, the G20 leaders made four trade-related commitments:

1. To refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures to stimulate exports.
2. To minimize any negative impact on trade and investment of our domestic policy actions, including fiscal policy and action in support of the financial sector.
3. To notify promptly the WTO of any such measures; and
4. To call upon the WTO, together with the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) to monitor and report on their adherence to these undertakings.

In late September, the WTO, the OECD, and UNCTAD released their second report on the G20 countries’ adherence to these undertakings: Report on G20 Trade and Investment Measures.[4] The report identifies approximately 280 measures undertaken by G20 countries between April and September. The report expressly reserves opinion as to the legality of the measures under WTO rules, or their trade-distorting nature. While the authors did not find “widespread” resort to trade and investment restrictions as yet, they did find “policy slippage” and pointed to multiple examples of protectionist measures adopted by G20 members, including agricultural export subsidies, tariff increases, new non-tariff measures, and trade defence mechanisms.[5]

In June 2008, the UK-based Centre for Economic Policy Research launched Global Trade Alert (GTA), a service providing real time information on state measures taken during the current global economic downturn that are likely to discriminate against foreign commerce. The GTA also issued a report shortly before the G20 meeting in September with its own analysis of the extent to which the G20 has “kept its promises” to avoid protectionism. The report, Broken Promises: a G-20 Summit Report by Global Trade Alert, identifies over 400 trade-related, state initiatives undertaken in the wake of the crisis.[6] It distinguishes between three types of measures:  those that almost certainly discriminate against foreign commercial interests; those that may discriminate against foreign commercial interests; and those that are either non-discriminatory or involve liberalization.[7] The study finds that “the overwhelming picture is one of planned and implemented state initiatives that reduce foreign commercial opportunities and reverse the 25-year trend towards open borders.” It estimates that worldwide, the number of discriminatory measures being implemented outnumbers the liberalizing measures by five to one.[8] The GTA finds that the impact of these measures is cause for significant concern: fewer than 5 percent of product categories, 20 percent of economic sectors, and a small number of trading jurisdictions have not been affected by any significantly restrictive measures.[9]

The two reports offer slightly different views as to the current intensity of trade protectionism. However, they are in agreement that the main challenge associated with the current protectionist mindset is the fact that many more protectionist measures are ‘in the pipeline’- planned and approved, but not yet implemented. They both stress that the main risk to the trading system is that states will continue to cede to protectionist pressures. Both caution that the continued implementation of protectionist measures will further erode trade liberalization achievements, and, more importantly, will hamper the global economic recovery. Both urgently recommend that governments plan a coordinated exit strategy to eliminate these elements as soon as possible.

The G20 leaders have announced their intention to prepare exit strategies.[10] However, they have merely agreed to implementation “when the time is right”. In light of the many trade protectionist measures still in the pipeline, their failure to commit to a timeline could contribute to aggravating the contraction of world trade and investment, which would undermine confidence in an early and sustained recovery of global economic activity. Stronger action is required.

[2] G20 Summit Declaration, “The Global Plan for Recovery and Reform”, London, 2 April 2009.  Accessed online October 25, 2009 at http://www.g20.org/Documents/g20_summit_declaration.pdf.

[3] Ibid.

[4] Report on G20 Trade and Investment Measures, September 2009. Accessed online October 25: http://www.pittsburghsummit.gov/documents/organization/129863.pdf.

[5] Ibid, at page 6.

[6] Simon J. Evenett (ed), Centre for Economic Policy Research, 2009. Accessed online October 25:  http://www.globaltradealert.org/sites/default/files/Broken_promises_GTA_second_report.pdf.

[7] Ibid, at page 18.

[8] Idem, at page 13.

[9] Idem, at page 4.

[10] http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf.

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