Trade and the crisis

Posted by Joseph Francois on 29 January 2009

In other fora, here and on VoxEU, I have argued that we need to stop focusing on the Doha Round, and move on to real dangers -- like rising protectionism outside the bounds we have placed on MFN tariffs. Times have changed. It is still true that the substance of the Doha Round will not impact the current crisis. A successful agreement would take years to implement, and it does not address the discretionary protection now threatening trade. However, in the present climate, it could serve as a potent symbol of commitment. So, for its value as a symbol, we should conclude it now, even if in a truncated form. To silence the darker voices urging our leaders to shift shared burdens onto others -- the EU has now reintroduced dairy export subsidies for example -- concluding Doha would be a sign that we choose to ignore those dark voices. Even this is not enough. There should be more. The OECD should collectively declare a temporary standstill (24 months?) on discretionary protection.

 

This would mean no antidumping, countervailing, or safeguard actions involving partners (including non-OECD partners) that also adhere to the standstill agreement, as well as a suspension of reintroduced export subsidies, until calmer heads and markets again prevail.

In the absence of a Trade Standstill Agreement, or something of the sort, things will get nasty. Indeed, they already are, judging from headlines just this week. The EU has started to introduce export subsidies, which means they are forcing other countries (including poor producers) to carry their share of the burden linked to depressed agricultural prices. At the same time, the United States Congress is gunning for a weakened China for maintaining an undervalued currency, even though China's exports are falling and the Chinese are needed to buy U.S. bonds and so fund Obama's new initiatives. Antidumping actions will undoubtedly surge as the global economy grows worse, as evidenced by India's recent antidumping assault on China. The U.S. Congress is also trying to redirect subsidies linked to antidumping duties back to firms, even though they have been found to violate U.S. treaties.

Exporters know this is a losing game. They need to press for a collective cool down period. Ignore the dark voices. We are in this together. Just say no....

 

Further reading: "Producers brace for tariff pain," AUSTRALIAN dairy farmers are under attack after the European Commission launched a barrage of export subsidies on to the world market...., Weekly Times Now, 28 January 2008. "China slams EU anti-dumping move, threatens WTO action," China Wednesday blasted an EU decision to slap hefty anti-dumping duties on Chinese-made screws and bolts and said it may take the issue to the World Trade Organisation..., AFP 29 January 2009. "ECONOMIC STIMULUS INCLUDES ANTI-DUMPING RELIEF FOR DOMESTIC LUMBER, STEEL & CEMENT FIRMS," Domestic lumber, steel and cement firms now required to pay back anti-dumping funds they received earlier this decade could seek their bills covered under a provision senators have included in the Finance Committee’s $455 billion economic stimulus measure...,Rotor News 27 January 2009. "Beware trade wars," The threat to world trade comes from the Omnibus Trade and Competitiveness Act of 1988. Should the Treasury officially determine China to be a currency manipulator, itcould unleash a range of remedies, including antidumping measures, countervailing duties and safeguards..., Willem Buiter FT blog, Published: January 27 2009. "India begins anti-subsidy probe against China," After setting off an avalanche of anti-dumping probes into a diverse range of manufactured products against China by responding to the domestic industry’s concerns in recent months, the Commerce Ministry has for the first time begun an anti-subsidy probe into imported sodium nitrite from China..., Business Line 29 January 2009.