The World Trade Organization (WTO) released its flagship Annual Report (2009) on the 22nd of July. Each year, the annual report focuses on a topic of special interest to the global trading community. It didn’t require much guessing to figure out that this year’s report would have something to do with the ongoing financial crisis and its impact on trade. But precisely which aspect of the financial crisis is most important for trade policy today?
The WTO has identified increased protectionism as the biggest danger. In a nutshell, under recessionary pressures, a country is tempted to erect higher trade barriers to shift demand from foreign-made to home-made goods, thereby stimulating its own economy. The problem here is that when all countries resort to protectionism, global welfare is lower (gains from trade are lost) and the recessionary pressures intensify.
The WTO Report notes that the use of protectionist measures such as Anti Dumping (AD) duties is already on the rise. Specifically, in 2008, the number of AD initiations increased by 28 percent compared with 2007. Eighteen WTO members reported initiating a total of 208 new investigations compared with 163 initiations reported for 2007. The number of new measures applied also increased by about the same rate in 2008. A total of 15 members reported applying 138 new AD measures, 29 per cent higher than the 107 new measures reported for 2007 (WTO Annual Report 2009, page 133).
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