A Crisis Calls for a "Crisis Round"

Arvind Subramanian (PIIE) and Aaditya Mattoo (The World Bank)

Op-ed in the Wall Street Journal

March 24, 2009

Protectionism is steadily mounting, but not only through the usual tariffs and quotas and the like. Instead, countries are skirting World Trade Organization rules and erecting new kinds of trade barriers. It's time to find new solutions to this new problem.

Today's protectionism is wide in scope. It ranges from tariff increases (Korea and Turkey) to restrictive import licensing (Indonesia) to state aid (United States, Germany, France, and United Kingdom), antidumping actions (India), and discriminatory government procurement (Malaysia). Other forms of actual or threatened trade barriers include protectionism masked as environmentalism or financial sector protectionism as well as resource nationalism.

These measures have two features: They do not violate WTO rules and for the most part are not addressed in the ongoing Doha Round of global trade talks. The Group of 20 hasn't addressed this problem, choosing, instead, to merely restate its preference for not restricting trade. The Doha negotiations, meanwhile, have slowed. The world urgently needs a solution to this problem.

Our suggestion is to launch a Crisis Round of trade talks at the G-20 London summit meeting next month. This round would aim to hold the line on protectionism and prevent the deterioration of current levels of global trade openness. For this round to have timely effect, it must be concluded within a year. Here's how it would work:

First, the round would have realistic goals. It would be confined to the key protectionist pressures and would not seek new liberalization given the current political climate. Instead, countries would legally commit in the WTO to freeze, for a fixed period of time-say three years-their current trade policies across the board.

Second, the agenda would address today's new protectionism. On antidumping action, the threshold for taking such actions would be raised. On government procurement-which has acquired additional significance because of fiscal stimulus plans and the expansion of government ownership-industrial countries would promise not to discriminate against developing countries, in return for the latter agreeing to make procurement practices more transparent. On environmentally motivated trade restrictions, all countries would agree to do nothing until an international agreement on climate change is negotiated.

This agenda must be complemented by new legal rules that support expeditious enforcement. One way to do that is through an accelerated WTO dispute settlement procedure. The object of preserving the status quo would be defeated if prolonged violations were tolerated simply because of a slow-moving dispute-settlement process.

Third, the Crisis Round would focus on the major economies only, given that the biggest threats to free trade come from the largest trading partners. Having all 153 WTO members participate would delay an agreement. The interests of all members would be helped, not hindered, by the large countries desisting from protectionist measures.

A Crisis Round will succeed if it can produce a balance of political gains and losses for the major trading players. All groups have to make concessions to freeze their current state of policy, but equally all groups can expect to gain from doing so. Moreover, freezing policy should be made easier by the fact that it would be for a limited period of time.

Once protection is in place, it is painfully difficult to negotiate away-the high tariffs of the Great Depression era were only eliminated decades later. The Crisis Round we propose would simply ask countries to convert their political declarations into legally enforceable, time-bound commitment in the WTO. If they are sincere, why should that be so hard?