Time to Rethink Trade Defence Mechanisms

The Financial Express, August 20, 2009

By Pradeep S Mehta

In the face of the enduring economic crisis, virtually every country, other than the poor ones, is backtracking to protectionism. In the name of shielding the domestic economy from being robbed of jobs, governments of developed and developing countries alike are resorting to populist autarkic policies. With this rat race for protection, the global free trade regime will gradually be pulled back into the vortex of trade barriers from which it has been struggling hard to recover. It is time for the WTO to bear on such measures with a greater voice.

Given the perception that trade defence measures built into its rule-based system are increasingly being misused as an excuse for protectionist measures, it may be unfair to blame the multilateral trade body for not acting. Many of these policies are not technically violations of binding commitments made by its members. For instance, ‘buy local’ campaigns and work-visa regulations may not be challenged on grounds of breach of commitments per se, though they are unfair trade practices by all means.

Practitioners of protectionism circumvent the legal reach of WTO by taking advantage of flexibilities allowed by the system for dealing with contingencies or by circumventing the rules. Little can be done to lock in flexibilities, elegantly known as measures of administered protection and commonly referred to as WTO-compliant trade measures. In fact, the furore for more and more flexibilities is gaining currency in the Doha Round negotiations.

Out of the agreements on safeguards, antidumping and countervailing duties—the central provisions for administered protection—antidumping is by far the most popular instrument, simply because invoking it is a lot easier. Noted trade economist TN Srinivasan has, however, christened it as a toxin. An antidumping initiation requires only a low threshold level of injury, has no compensation clause for wrong indictment and cannot be retaliated by the aggrieved parties. The annual tally of antidumping initiations in 2008 jumped up by more than a quarter compared to the previous year.

Choosing between antidumping and safeguards as contingency trade blocking measures according to convenience at free will is a deplorable situation, since they are meant for two distinct types of contingencies, respectively. Though the former should only be applied as a punitive action against below cost pricing and the latter as a safety valve.

As far as evading rules is concerned, the WTO is apparently even more helpless seeing that today’s tradeaucrats are exceptionally innovative and very often comically imaginative when it comes to cooking up ‘legitimate’ reasons for meddling with free trade. In May 2009, the US Customs and Border Protection kicked off import restrictions on switchblade knives citing ‘health and public safety concerns’. That admissibility of pocket knives with spring-assisted opening mechanics is suddenly found life-threatening in a country with the most liberal civilian gun-rights in the world is certainly touching. Touching still, the pubic security conscious customs authority also pacified panic sticken domestic producers by assuring them that the rule would not apply to knives already in usage or that are manufactured domestically. What could be more patriotic than letting citizens get hurt by only nationally made weapons.

Generally it is the affected domestic industry which eggs the government to take up trade defence measures against imports because they cannot stand healthy price competition. Recently, on taking safeguard action against imports of steel, paper and auto parts, the Indian government heeded the pleas of the industry and postponed action (http://cuts-ccier.org/pdf/CDIDossier-May-July2009.pdf).

From outright import bans on grounds of national security and public health to tactical currency devaluations, conditionalities dictated to bailed-out sick businesses, government procurement clauses, corporate accountability & information disclosure norms, other direct & indirect NTBs, myriad methods are used to practice favouritism towards domestic manufacturers. Such barriers are applied not only in goods trade but also in cross border investments and services trade. By employing these methods, governments hope not to be dragged into embarrassing trade disputes.

In order to stop protectionism from escalating into trade wars, instruments for administered protection must be reclaimed for the purpose they are designed. Reforming these instruments to squeeze out casual users in the near future may not be practical, though this agenda should not be left off from the plans. Doing so is only likely to force protectionist measures to use imaginative ways of evading rules.

One way out of this predicament could be that of diplomacy. Publicising trade distortive measures would tease away defaulters to some extent. Already there are informal initiatives like online info-banks on trade barriers and awareness campaigns led by NGOs (worldtradealert.org).

But the WTO should not waste an opportunity if it can put any formal diplomatic pressure on its members to voluntarily restrain themselves from protectionist practices, so that the rhetoric of loose formations like G-8 and G-20 may get converted into action. This should not be hard and may only take as much to remind the global leaders to live up to the promises they have made in the past. While doing so, it may also be worthwhile to remind them of how much time and effort it has taken to push trade liberalisation this far. At this critical juncture, we would not like to take two steps back after taking one forward.

The author is the secretary-general of CUTS International and can be reached at psm@cuts.org. Atul Kaushik and Joseph George of CUTS contributed to this article .

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