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Continued Weakness in Trade Growth Poses Threat of Protectionism, WTO Chief Says

Thursday, April 11, 2013
By Shawn McCausland
Sandler, Travis & Rosenberg Trade Report

World trade growth fell to 2.0% in 2012 from 5.2% in 2011, the World Trade Organization reports, and is expected to remain sluggish in 2013 at around 3.3%. WTO Director-General Pascal Lamy warned that this trend could yield increasing pressure for protectionist measures.

The WTO attributes the deceleration of trade growth in 2012 to flagging output and high unemployment in developed countries, which reduced their imports and thus slowed export growth in both developed and developing economies. This year “looks to be a near repeat” of 2012, the WTO adds, with both trade and output expanding slowly, below their long-term average rates. Much of this is related to problems in the European Union, where the economy is expected to remain flat or even contract slightly. Improved economic prospects in the U.S. will only partially offset the EU’s continued weakness, which will also constrain exports from China. The WTO even speculates that “the fundamental growth rate of world trade volumes” has fallen, noting that a return to the pre-economic crisis average of 6.0% “would require a period of very rapid trade expansion” that “does not appear likely any time soon.”

“The events of 2012 should serve as a reminder that the structural flaws in economies that were revealed by the economic crisis have not been fully addressed, despite important progress in some areas,” said Lamy. “As long as global economic weakness persists, protectionist pressure will build and could eventually become overwhelming. The threat of protectionism may be greater now than at any time since the start of the crisis, since other polices to restore growth have been tried and found wanting.”

“To prevent a self-destructive lapse into economic nationalism,” Lamy concluded, “countries need to refocus their attention on reinforcing the multilateral trading system.” There are in fact some multilateral efforts underway, but the outlook is cloudy. Good progress is being made on expanding a WTO agreement on duty-free trade in information technology goods, and negotiations on a new trade in services agreement are expected to launch shortly. On the other hand, WTO members have all but abandoned the Doha Round, and there have been difficulties trying to assemble a smaller package covering trade facilitation and other issues for approval at this December’s WTO ministerial meeting. Instead, many countries are actively pursuing bilateral and regional trade liberalization agreements.

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