The UNCTAD trade report

When Pascal Lamy, the director general of the World Trade Organisation, spoke to me on 'Quest Means Business' last week, I didn't want to waste time talking about the Doha Round of World Trade Talks.  Frankly after nine years of talking, the parties still haven't completed the technical negotiations. Completion of the round is still at least a year away.
 
The bigger problem at the moment, is that more countries are at risk of introducing policies to protect home industries. For one simple reason: jobs and the unemployed!
 
One of the defining moments of the Great Financial Crisis, was when world trade fell off a cliff.  It was the first time in 50 years global trade suffered such a dramatic decline.  It sent the strongest message that the global economy was badly damaged. For the G20, we would sink and swim together.

The rebound in trade over the past 12 months has been equally astonishing. While graphs of growth in developed countries look L shaped, global trade has rebounded with a U or V shape. This of course is a very positive development - global trade is the engine of growth - but worryingly nothing seems to have changed since the bad old days before the crisis.

Today's trade flows are just as distorted as they were before. This year, China's trade surplus will be + 5 per cent and Germany's +5.2 per cent. On the deficit side the US will be around -3.2 per cent, Australia's -3.9 per cent and South Africa's -5 per cent.

As the developed world inches its way back to growth, there is simply not enough steam in the engine to create new jobs.  Lamy calls this the "red danger zone" and worries that now might be the time when countries try to protect their home industries by introducing protectionist policies. 

Lamy said on Quest Means Business last week, "Thanks to the WTO disciplines, we haven't had any of that expected wave of protectionism... but we are not out of the woods.  Protectionist temptations are rooted in social demands for protection.  And the social demands for protection are rooted in unemployment." 

Until now, politicians have resisted the protectionist road. True, during the darkest days of the crisis, the World Bank identified about 23 policies introduced by various countries designed to protect home industries. They ranged from automobiles to agriculture. The measures were detailed and complicated, but all fundamentally were designed to keep out someone else's cheaper goods.  But a general rush to put up barriers was resisted. Time and again, the G20 in its communiqués warned against this.  In June the Toronto Summit's final declaration read "While the global economic crisis led to the sharpest decline of trade in more than seventy years, G-20 countries chose to keep markets open to the opportunities that trade and investment offer. It was the right choice."