1. The WTO and the Emerging Protectionist Threats? Aaditya Mattoo (World Bank) Arvind Subramanian (Peterson Institute and Center for Global Development) WITA February 19, 2009

2. Summary The macro-environment for protectionism has changed with the global financial crisis Resulting protectionist actions are not WTO- illegal and are not addressed by Doha Protectionism could be low-grade and mutually accommodated However, risk of more serious protectionism remains which may entail a re-fashioned Doha agenda

3. The Macro Environment—Pre-Crisis Rapid economic growth and low inflation Broadly open markets in the industrial world + Sustained unilateral and regional liberalization by developing countries in goods, services and even agriculture = Broadly stable multilateral trading equilibrium. Hence: –The modesty of Doha’s ambitions and –The difficulty in concluding it

4. The Macro Environment Today The worst global recession since the Great Depression In the US, recession combined with strong/strengthening dollar This is a potent combination for protectionist pressures: some evidence

5. Macroeconomic origins of the New Protectionist Pressures Preventing leakages of fiscal stimulus packages: “Buy America” With consumption and investment in retreat, and magnitude and effects of fiscal action uncertain, external demand may become the most important source of escape from recession Hence undervalued exchange rates and unilateral responses to them could become a source of trade friction (Ireland and France have complained against Sterling depreciation; China?) Longer and deeper the recession, the graver the protectionist and mercantilist threat

6. The Protectionist Pressures: Traditional Instruments Tariffs/licensing (mostly developing countries) State aid/subsidies (Autos, financial sector; mostly industrial but also developing countries) Anti-dumping (mostly developing countries) Government procurement (mostly industrial countries)

7. The Protectionist Pressures: New Instruments Undervalued exchange rates and responses to them Environmentally-motivated protectionism Financial nationalism (British loans for British firms) Resource nationalism (Russian gas for Russia; Indian rice for India)

8. Legal Protectionism The emerging threats—traditional and new—are not WTO-illegal; in part reflecting respect for WTO rules More seriously, emerging threats are not addressed by the Doha Round

9. Doha Deliverables Agriculture –Elimination of export subsidies –Limits on production subsidies Manufacturing –Reduction of tariff peaks –Reduction of bound tariffs

10. But Limited Incremental Liberalization--Goods

11. And Much Scope for Policy Reversals: Goods

12. No Incremental Liberalization--Services And only limited binding of existing liberalization

13. Disciplines on non-tariff protection Doha would not significantly tighten disciplines on: Antidumping Production subsidies Government procurement Undervalued exchange rates Environmentally-motivated protection

14. International Policy Responses Scenario I: Protectionism could remain low-grade and mutually accommodated: “Although additional protectionism will prove inevitable during the crisis, all of us must display a sense of proportion.” ( Putin at Davos) In this scenario, options include: Standstill plus monitoring –G-20 communiqué honored in breach but naming-and-shaming could lead to some restraint Continued efforts to complete existing Doha agenda Harvest fruits of past negotiating effort Signal collective commitment to openness

15. International Policy Responses (contd.) But real danger that prolonged downturn could provoke Scenario II: serious protectionist actions If this scenario is likely, focus on current Doha agenda will: –Delay action to pre-empt new protectionism –Misallocate scarce political capital Addressing actual and potential pressures— through a re-positioned Doha—may be preferable

16. Re-positioned Doha What should the agenda comprise? Who will be the key protagonists? What are the feasible bargains? What should be the appropriate forum?