Mathabo Le Roux
17 October 2008
Johannesburg — THE global credit meltdown could snarl up multilateral trade talks indefinitely or even potentially derail the negotiations completely, a trade expert has said.
Speaking at the South African Chamber of Commerce and Industry annual conference this week, Peter Draper, trade research fellow at the South African Institute of International Affairs, said the same tendency of protectionism that prevailed after the Second World War had reared its head again. This as countries seek to protect their economies in the wake of the worst global economic crisis since 1930.
But veteran economist Colin McCarthy, an associate with the Trade Law Centre of Southern Africa , has also warned against the hasty revival of multilateral trade negotiations in the face of a sharp and prolonged downturn in economic activity, seen as an inevitable fallout from the credit meltdown.
World Trade Organisation (WTO) director-general Pascal Lamy this week conceded that the Doha Development Round would not be concluded this year. Still, Lamy, who is set to leave office next year if he does not extend his contract, was determined to finalise the modalities of a trade pact, he told the general council .
But McCarthy said the resumption of the Doha talks would yield undesirable outcomes.
"Recessionary conditions have a negative impact on world trade through the link between real income and imports. Under these conditions protectionist thinking could thrive, as they did in the aftermath of the Depression (between 1929 and 1932). These conditions are not favourable for the resuscitation of the Doha round," he said .
But McCarthy also sees protectionism "entering through the back door" in the use of WTO trade remedy mechanisms, which could undermine the benefits of international trade.
"In a protectionist environment with little possibility of import tariff amendments because of the WTO agreements, it is likely that we will see an increase in the number of anti-dumping cases. Experience has shown that it is not difficult to use this mechanism as a protectionist measure.
"These issues call for special vigilance if the idea of international trade as welfare-enhancing is to remain alive and reflected in policy decisions at national and international level," McCarthy said.
But even as Lamy pushes ahead with the Doha agenda, more pressing issues are occupying minds at the WTO. This comes with fears that a global credit freeze could also hamper trade finance, which would knock exporters in developing countries in particular.
Lamy last week set up an internal task force to monitor the effects of the crisis on trade finance.
"One-third of the world economy, mainly in emerging countries, still has a big growth potential and we must try and make sure that this engine can work through trade," Lamy said.
The WTO will meet next month to look at ways to address the situation if the credit crisis starts affecting developing countries' access to financing imports and exports. Trade finance has been insulated from the credit crunch, but more recently trade credit rates have increased steeply, prompting the Brazilian government to come to the aid of its exporters by extending credit lines.
Multilateral trade negotiations have been complicated with the recall by UK Prime Minister Gordon Brown of European Commission Trade Commissioner Peter Mandelson to serve as business secretary in Brown's government.
Draper said it was unclear whether Mandelson's replacement -- little-known Catherine Ashton -- would be required to just "keep the seat warm" until next year when the European Commission is set to appoint new bureaucrats. Draper also questioned whether the new trade commissioner would accept and take forward the negotiating positions that Mandelson had negotiated.
Further snarling up progress with the Doha talks was the imminent US presidential election , with a likely Democrat victory seen as putting a damper on trade liberalisation in that country .
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