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Retaining flexible response options

The WTO’s 2009 report takes a pragmatic view of trade policies adopted by countries in these difficult times. Although there are some signs of the economic crisis abating, the almost universal view is that recovery will be delayed, and when it starts it will be weak. All the developed economies are expected to contract this year. As for global trade, the WTO, which a few months ago had predicted a nine per cent decline in volume during 2009, foresees an even worse sc enario, with a 10 per cent drop. A consequence of economic hardship across the world has been the rise of protectionism and economic nationalism, particularly in the developed countries. All governments are under pressure from their domestic constituencies to adopt measures that may restrict trade. The key challenge before the WTO and its members is to ensure that such measures do not escalate into mutually destructive forms of protectionism. Contingency measures built into the trade rules can act as a safety valve and help in maintaining a rule-based system of multilateral trade. They include safeguards, anti-dumping rules, increase in tariffs up to ceilings allowed under WTO agreements, and countervailing duties to offset the impact of subsidies in other countries. Properly calibrated, they can in difficult times as now lend stability to trade agreements and check protectionism from getting out of control.

Governments can use such flexibilities to get some badly needed manoeuvring space when political opposition to free trade builds up. Obviously, the contingency measures are also a form of adjustment policies designed to shield domestic producers from import competition, at least temporarily. Since these are built into agreements, they uphold the rule of law in trade and, unlike arbitrary protectionist actions, are channelled into prescribed and predictable policy initiatives. Not all the circumstances that require trade policy interventions can be anticipated. The report admits that flexibilities come at a price. The secret is to balance them against commitments. Too much flexibility can undermine commitments but too little will render the agreements unsustainable. The WTO’s endorsement of contingency measures has an immediate relevance for India and the Doha round of trade talks. In July 2008 a possible agreement did not come through because of differences between India and the U.S. over a specific safeguard mechanism against a surge in agricultural imports. With the possibility of the talks resuming, there will be more than ordinary interest in the way trade negotiators get around such differences which have to do with flexibilities.

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