Speaking to the WTO Trade Negotiations Committee Lamy noted that several members, including Egypt on behalf of the Arab Group and Japan, have suggested that he “produce regular updates of these measures so that we have a better sense of the trade consequences of the financial crisis.” Lamy has set up an internal task force to begin collecting information. He said he is prepared to provide written reports periodically with the first report coming shortly. Lamy also wants a forum where members can collectively discuss the written reports. He has talked to the Chair of the existing WTO Trade Policy Review Body about organizing discussions. They are looking for a date during the second part of January to hold the first session.
Lamy is right. Now is the time for discussions at the WTO on the long-term consequences of politically popular short-term trade policy decisions. The WTO cannot prevent an individual country from raising barriers within its WTO commitments. With many bound tariffs much higher than applied tariffs, particularly in agriculture, tariffs can be increased sharply, tripled in some cases, with substantial economic effects on trade. The average applied tariff declined from 26 percent in 1986 to 9 percent in 2007. A Doha Round agreement would have reduced the gap between bound and applied tariffs.
Written reports and public discussions about policy changes may provide a counter balance to political pressures within a country to help one industry at the expense of others that rely on trade. This may reduce the tendency for countries to talk about more open trade in WTO meetings while doing the opposite in day-to-day trade policy decision making. This is a new activity for the WTO and gives it a real time role in trade policy discussions rather than being mired in dispute resolution cases that are sometimes irrelevant when they are decided. Some trade policy conflicts can possibly be avoided by detouring the most distorting trade policy decisions.
Based on media reports of trade policy changes, there will be plenty for Lamy and his task force to report to the membership. Just three days after the G20 countries met in Washington, DC on November 15 to talk about the economic slowdown and agreed to not increase trade barriers, India placed a 20 percent import tariff on crude soybean oil. In March of this year India had eliminated the tariff on crude soybean oil as consumer prices increased. Now India has done the opposite to protect farmers after agricultural commodities prices declined sharply. This managed trade shifts the economic costs of price volatility onto producers and consumers in other countries. It exacerbates world price volatility when open trade does just the opposite.
Russia, another G20 meeting participant and a recent candidate for WTO membership, has increased tariffs on car imports up to 35 percent. In early December they increased tariffs on over quota pork and poultry meat imports to 75 percent and 95 percent respectively and reduced poultry meat import quotas from 1.21 million metric ton in 2008 to 0.95 million metric tons in 2009. Sanitary and phyto-sanitary issues continue to cause problems for meat shipments from the U.S. and other countries.
The center of concern is Southeast Asia and China where export-oriented countries could engage in competitive devaluations of currencies. The government of China may be abandoning its efforts to allow the yuan to appreciate against the dollar and has announced higher export tariff rebates on 3,700 products to stimulate exports. The U.S. recently asked in a WTO case for consultations with China regarding programs to promote Chinese brand names with export subsidies and protectionist industrial policies. The ten member countries of ASEAN have been staunch supporter of trade expansion within the association, in Asia and the world. Indonesia, an ASEAN member, has recently placed import restrictions on 500 products.
The U.S. certainly is not immune from trade distorting policy changes. The $17.4 billion loan arranged by the Bush Administration for the auto industry is looked at by the rest of the world as protecting the industry from increased competition. Canada has followed with a similar program. The stimulus package by the incoming Obama Administration could be a way to limit trade in the name of protecting U.S. jobs.
Trade volume according to World Bank projections will decline by 2.1 percent in 2009, the first decline since 1982. While some of the decline is due to inventory drawdown and a shortage of credit, trade could decline again in 2010. According to estimates from the International Food Policy Research Institute, if all countries increased tariffs to the maximum under existing WTO commitments the average applied tariff would double and global trade would shrink by 7.7 percent. The World Bank expects world GDP growth to decline from 2.5 percent in 2008 to 0.9 percent in 2009 with developing country growth declining from 7.9 percent in 2008 to 4.5 percent in 2009.
Lamy is stepping into the middle of a big gap, but that is where the WTO should be in these difficult trade policy times. The WTO can not force any country to do anything; that was the intent of its design to protect the sovereignty of each member country. The WTO can keep its membership informed of what is going on in trade policy and create an opportunity for members to raise issues of concern.