World Trade Report 2009: Trade Policy Commitments and Contingency Measures, How Can Trade Remain Open inTimes of Crisis

In the last few months trade has contracted more than at any time since the 1930s, reflecting the dramatic global economic downturn provoked in the first instance by the collapse of major financial institutions. Trade growth will be strongly negative this year and we are unlikely to see sustained economic growth until 2010. This adversity is severely testing the policy ingenuity of governments across the globe, and in today’s interdependent world, their willingness to make common cause in addressing shared challenges. Effective international cooperation and open markets are as vital today as they have ever been.

Experience tells us that while restrictive trade policies are not necessarily the root cause of episodes of economic downturn – they were not the trigger for the Great Depression – a protectionist response to the pain of contraction is a recipe for deepening and prolonging an economic crisis. A seemingly attractive short-term solution of keeping production and consumption at home soon becomes a millstone around a nation’s neck, the more so when trading partners retaliate in kind. I believe this is better understood today than in the past, but it takes decisive and clear-thinking governments to hold the line under pressure. Many governments have affirmed their intention to keep markets open and the WTO’s monitoring exercise suggests that by and large authorities are taking these declarations seriously. But significant risks remain, and call for vigilance.

The choice of topic for this year’s World Trade Report is highly relevant to the challenge of ensuring that the channels of trade remain open in the face of economic adversity. Well-balanced contingency measures, designed primarily to deal with a variety of unanticipated market situations, are fundamental to the effectiveness and stability of trade agreements. The Report explores this proposition from a variety of angles. Through the prism of several policy options defined as “contingency” measures – safeguards, anti-dumping and countervailing measures, the re-negotiation of tariff commitments, the raising of tariffs up to their legal maximum levels (bindings), and the use of export taxes – the Report examines why countries resort to such measures, as well as the implications for the trading system in terms of how they are designed and deployed


CONTENTS

ABBREVIATIONS AND SYMBOLS vii
ACKNOWLEDGEMENTS ix
DISCLAIMER x
FOREWORD BY THE DIRECTOR-GENERAL xi
EXECUTIVE SUMMARY xiii
I THE TRADE SITUATION IN 2008-09 1
A INTRODUCTION 1
B OVERVIEW OF TRADE AND PRODUCTION DEVELOPMENTS IN 2008-09 3
C MERCHANDISE TRADE, VOLUME (REAL) TERMS, 2008 5
D MERCHANDISE AND SERVICES TRADE, VALUE (NOMINAL) TERMS, 2008 7
II TRADE POLICY COMMITMENTS AND CONTINGENCY MEASURES 19
A INTRODUCTION 19
B FLEXIBILITY IN TRADE AGREEMENTS 21
1 Economic theories of trade agreements and the role of flexibilities 21
2 Circumstances for suspension of commitments and flexibility measures built into the WTO agreements 30
3 Conclusions 39
C ECONOMICS, DISCIPLINES AND PRACTICES 47
1 Safeguards 47
2 Dumping and anti-dumping measures 65
3 Subsidies and countervailing duties 84
4 Other selected measures of contingency protection 102
5 Choosing among different measures 114
6 Conclusions 117
D EMPIRICAL EVIDENCE 127
1 Patterns and trends in the use of contingency measures 127
2 Contingency measures and the multilateral trading system 142
3 Factors explaining the use of trade contingency measures 147
4 The economic impact of contingency measures 152
5 Conclusions 156
E CONCLUSIONS 159
BIBLIOGRAPHY 161
TECHNICAL NOTES 169