Global financial crisis protectionism and world trading system
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Global Financial Crisis, Protectionism, and World Trading System. Wongun Song Korea Economic Research Institute. Global Financial Crisis and World Trade.  Global financial crisis caused world trade to reduce sharply. P ace of reduction in global production

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Global financial crisis protectionism and world trading system

Global Financial Crisis, Protectionism, and World Trading System

Wongun Song

Korea Economic Research Institute


Global financial crisis protectionism and world trading system

Global Financial Crisis

and World Trade

 Global financial crisis caused world trade to reduce sharply.

  • Pace of reduction in global production

  • and trade is faster and severer than that of any recent global economic downturn.


Global financial crisis protectionism and world trading system

Global Financial Crisis

and World Trade

  • World trade grew more than 6% a year. (1990-2006)

  • Reduction of World Trade in 2009 (predicted) : 9% (WTO), 11% (IMF)


Global financial crisis protectionism and world trading system

Global Financial Crisis

and World Trade


Global financial crisis protectionism and world trading system

Global Financial Crisis

and World Trade


Global financial crisis protectionism and world trading system

Likelihood of Protectionism

Global Financial Crisis

Rapid and Sharp Reduction in Demand

Worsening Profitability and Increase in Bankruptcies

Job Losses

Incentives to protect domestic firms and industries


Global financial crisis protectionism and world trading system

Risk of Worsening Crisis from the Spread of Protectionism

Adoption of Protectionist measures in country A

Retaliatory adoption of Protectionist measures

in countries affected by measure of country A

Trade War

Collapse of Global Trade

Worsening Global Economic Crisis


Global financial crisis protectionism and world trading system

Protectionist Measures

since blowout of Global Financial Crisis

Subsidies

Tariffs

Anti-dumping

Other NTBs


Global financial crisis protectionism and world trading system

Protectionist Measures

since blowout of Global Financial Crisis

 Raise tariffs: Ecuador, Russia, India etc

Subsidies to troubled domestic industries:

Automobile industry

(US, Europe, Canada, China, Brazil etc)

Discriminatory procurement provisions in fiscal stimulus

bills : ‘Buy American’, ‘Buy Chinese’ Provisions

 Anti-dumping : increase in investigations initiated

Other Non-tariff barriers: import bans, discretionary

licensing requirements


Global financial crisis protectionism and world trading system

Protectionism and World Trading System

Protectionism can spread without violation of

WTO agreements

Spread of protectionist measures that could nullify

WTO agreements will lead to collapse of

world trading system for free trade

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Global financial crisis protectionism and world trading system

Possibility of global protectionism by competitively raising tariff barriers

Raise in tariff rates is the easiest way of

protecting domestic industries.

MFN applied tariff rates < Bounded tariff

rates : can raise tariff rates without violating

WTO rules.

 Developing nations can raise tariff barriers

without violating WTO agreements.


Global financial crisis protectionism and world trading system

Possibility of global protectionism

by raising non-tariff barriers

 Raising non-tariff barriers : a feasible way for

both advanced and developing nations to

protect domestic industries.

 Possible to abuse non-tariff barriers such as

anti-dumping without violation of WTO

agreements

 Abuse of non-tariff barriers may cause trade

wars and spread of protectionism


Global financial crisis protectionism and world trading system

Fiscal Stimulus Bills and

World Trading System

  • Subsidizing troubled domestic industries is included

    in almost all fiscal stimulus bills.

    (e.g. automobile industry, steel industry)

  • It may violate WTO norms but ambiguity remains

    whether it has broke WTO rules.

  • Expansionary fiscal policies can be used as a way

    of subsidizing and protecting domestic industries in a

    competitive or retaliatory fashion.

  • Widespread use of subsidies might lead to the

    dismantling of world trading system constructed by

    decades of global efforts towards free trade.


Global financial crisis protectionism and world trading system

Ways to Avoid Protectionism

Completing Doha

Embarking on

a New Round

Empower WTO for standstill

with G20

Agreementon Co-ordinating

Fiscal Policy


Global financial crisis protectionism and world trading system

Completion of DDA

  • Once DDA is completed

Tariff rates will be lowered sharply

: little room for raising tariff rates

Trade barriers such as NTBs

(anti-dumping duties, subsidies) will be lowered

Use of other protectionist measures will be limited

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Global financial crisis protectionism and world trading system

Ways of Enforcing the Standstill

Make a comprehensive list of protectionist measures

that governments(G20) should not adopt

Empower the WTO to monitor the standstill and name

those who break it : G20 will need to agree on the rules

for enforcing standstill

Coordination of fiscal policy :

necessary to avoid the competitive use of subsidies to

ailing domestic industries.

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Thank you

Thank You!!


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