Tuesday, January 27, 2009

WTO worried over protectionist measures due to global crisis

D Ravi Kanth / Geneva January 27, 2009 (Business Standard)

World Trade Organization (WTO) Director General Pascal Lamy today presented a “work in progress” report on the dangers of tit-for-tat protectionist measures due to the worsening global trade conditions.

Commentary: Considering its the only global trade body we have at present, which makes it the devil we all know, I am glad to hear that the WTO will begin active updating of trade reports on the crisis.

Even as rich countries are providing tens of billions of dollars to their ailing industries, developing countries without deep pockets have been forced to raise their tariff barriers. “Protectionism could also provoke retaliatory action by others that would compound the damage caused,” he suggested.

Commentary: They do so because protectionism is possibly a natural human group response to threat and if there is no where to run barriers go up.

The Indian government’s move to raise tariffs on some steel products as well as fresh restrictions on imports of some steel products figured in the report along with other rescue packages and state-aid provided by different members.

Commentary: It might have made sense to ensure this didn't happen during the G8 talks with BRIC nations a few months ago. Concessions might have been made more easily at that time.

“The shortage of liquidity and disproportionate aversion to risk” has resulted in a shortfall of trade finance to the tune of $25 billion in November last year. Worse still, the cost of trade credit has been tripling in some emerging economies, he noted.

Commentary: This access to liquidity was reserved for US investment banks and car companies (with perhaps the exception of Freddie Mac and Fannie Mae). Unfortunately according to the system of capitalism which Americans have claimed in the past was best, a free trade world should ensure only the survival of the fittest companies and banks.

The confidential 14-page report submitted to members, a copy of which is with Business Standard, catalogues the range of “trade-restricting” or “trade-distorting” measures adopted by members in the face of uncontrollable financial tsunami that began on the shores of the industrialised countries last year.

Commentary: This is the kind of information which reveals the duality of information. "If there's danger in the language gentlemen, I suggest no further use of the two way radio." Revealing trade restrictions trends in the last three months might appear to be a good idea to ensure everyone is on the same page. However limiting access may be an attempt to prevent further trade restrictions.

While real trade growth is estimated at around 4 per cent last year, the global export volumes would be -2.1 per cent in 2009 based on the World Bank estimates. “Weaker economic growth” will have far-reaching ramifications for developing countries given their heavy dependence on global trade.

That is a net fall of 6.1% ~ wiping out the annual 2007 GDP growth of 71% of APEC member states anyway. By bailing out local investment banks and car companies in the US most of Asia appears left to its own devices on how to perceive free trade policies in terms of US priorities which appear to be taking care of their own and themselves first.

Several measures underlying the stimulus packages, such as “state aid” or “subsidy”, are bound to have negative slipover effects on other markets or introduce distortions to competition among financial institutions, the report says.

Commentary: Who is the pot calling the kettle black here? What other forms of remediation can be expected to be made? Can developing nations be expected to troop up to IMF and be administered US focused reforms when the US was responsible for the crisis to begin with? There shouldn't be a debate about this. National sovereignty issues may be the real problem for the US. Money may not be able to talk especially the US dollar ~ for much longer.

It is time for a massive US banking industry "mea culpa." Common sense might suggest the US Treasury be the preferred lender of choice to any foreign reserve banks willing to borrow from it (or if they are even allowed to do that) and on the same standards and principles as for Lehmans and relatives.

Or make the IMF what it was intended to be. A self-administered emergency loans agency with no strings attached. Then this problem might go away a little more quickly and with less pain and suffering. Or as according to somebody (who wrote it a number of years ago), as the US has special and unlimited drawing rights to IMF loans at interest rates it sets for itself, use the "carte blanche." Set those interest rates for yourself at zero and start a bidding war on interest rates to approved administrators of subsidiary loans to virtually any nation who asks for them with few to no strings attached. The puppet master has no clothes.

Besides, the ongoing turmoil in banks and financial markets has directly impacted international trade “through the tightening of liquidity, which affects the supply of trade credit by the main international banks”.

Commentary: This coincides with cheap commodities prices which should stimulate trade rather than suppress it. I can't help feeling that the credit tightening is in collusion with sellers at a convenient time.

Due to the worsening conditions in the flow of credit among banks, international banks are not able to supply as much credit as demanded by traders at affordable prices, says Lamy.

Commentary: Perhaps another reason, gentlemen, why the IMF should step forward with a blueprint which allows it to function as was originally intended.

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