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Trade protectionism rising March 18, 2009

Posted by Sverre in : Political economy , trackback

The World Bank reports today that protectionism in the world is rising as a result of the current crisis. 17 of the G20 nations have enacted protectionist policies despite their pledge in the Washington action plan as recently as November 15 last year. Article 13 of the action plan states:

We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.

The report states that the developed economies resort to subsidizing of export industries, while the developing use a number of different measures, among them imposing tariffs. According to the World Bank, this is testimony of the superior financial strength of the developed economies. The generated deficits might however increase pressure to “wall off” the economy, by which I assume they mean increasing trade tariffs.

When the rich countries of the world resort to direct subsidies for business, as is the case with the American car industry subsidies, the poorer countries should have reason to fear. Neither rich nor poor countries can afford to stop trading, but the fact that the richer countries have access to subsidies and the poor countries must wall off trade might prove very bad news for the poorer countries in the long run.

Find the rather short and easily read report here:

http://siteresources.worldbank.org/NEWS/Resources/Trade_Note_37.pdf

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