Trade Report 2009
These are the conclusions of World Trade Organization economists in a report on
contingency measures in the WTO's 2009 World Trade Report.
This year's Report examines the range of measures in WTO trade agreements that
governments may call upon when facing economic difficulties (such as safeguards,
anti-dumping, increase in tariffs up to allowed WTO ceilings etc) and the role
that these measures can play. Trade growth will be strongly negative this year.
Although this contraction appears to be slowing, the economic situation remains
fragile. Continuing downside risks led WTO economists to revise further downward
its forecast for 2009 world merchandise trade from a decline in volume of 9 per
cent to a decline of 10 per cent. The response of governments around the world
will play a big part in determining the magnitude of this decline and its
“The topic for this year's World Trade Report is highly relevant to the
challenge of ensuring that the channels of trade remain open in face of economic
adversity. Well-balanced contingency measures, designed primarily to deal with a
variety of unanticipated market situations, are key to the effectiveness and the
stability of trade agreements and to avoiding high intensity protectionism” said
Director-General Pascal Lamy in his introductory comments to the Report.
Through an economic, legal and political economy analysis of some measures of
contingency, the Report explores the reasons why countries introduce contingency
provisions in trade agreements, why they may resort to measures of contingency
protection as well as the implications for an economy and for the trading system
as a whole.
While these actions restrain trade flows, they also provide governments with a
political margin of manoeuvre and can act as a safety valve when political
pressures build. Contingency measures can be seen as an instrument of adjustment
policy, to allow for temporary relief from import competition and to give the
domestic firm the time to make the necessary adjustments. They can also serve to
deter certain trade actions employed by trading partners. Moreover, they can act
as a means of helping to maintain the rule of law in international trade, in
that they channel otherwise arbitrary protectionist actions into prescribed and
predictable policy measures. Finally, contingency measures may simply reflect
the reality that the future is uncertain and it is either too costly or
impossible to foresee all possible set of circumstances when to regulate
The introduction of contingency measures in a trade agreement can be
instrumental if governments are to agree to ambitious levels of trade opening.
Governments may be more willing to accept deeper commitments knowing that they
have adjustment policy tools in the form of contingency measures. In addition,
contingency measures preserve the credibility of an agreement. An agreement that
foresees the possibility to use certain measures to manage unforeseen
circumstances of economic or non-economic difficulties has a better chance of
remaining robust than an agreement that results in regular non-compliance.
Trade policy flexibilities are not harmless. The Report highlights the
importance to distinguish between the initial motivations for introducing
flexibilities in a trade agreement and the consequences of using such
flexibilities. The fact that trade contingency measures are necessary to ensure
further opening and stability of a trade agreement does not mean they are
without cost. First, in the absence of market failures, trade restrictions will
cause losses in economic welfare. Second, flexibilities may be used to backslide
on previous commitments.
“The challenge in designing contingency measures is to strike a balance between
flexibility and commitments. Too much flexibility may undermine the value of
commitments but too little may render the rules unsustainable. It is for this
reason that the design of contingency measures is frequently a central element
of negotiations”, said Director-General Lamy.
The analysis of economic effects of the use of contingent measures reviewed in
the World Trade Report suggests two main conclusions. First, the design of such
measures should aim at limiting the circumstances when they can be used as a
protectionist device. Second, the design of contingency measures should not
undermine the role of trade agreements. Contingency measures should not be
designed in a way that upsets the balance of a trade agreement nor which
undermines governments' objective of making a binding commitment to the private
The Report also analyses whether WTO provisions provide a balance between giving
governments necessary flexibility to face difficult economic situations and
limiting the use of these measures for protectionist purposes. In so doing, the
Report focuses primarily on safeguards, such as tariffs and quotas, which may be
introduced to counter increased imports deemed injurious to domestic industry,
anti-dumping duties which can be imposed to respond to alleged injury caused by
“dumped” imports, and countervailing duties which can be used to offset foreign
subsidies considered injurious to the domestic industry. The Report also
discusses policy options, such as the renegotiation of tariff commitments, the
use of export taxes, and the increases in tariffs up to their legal maximum
ceiling or binding.
One overall conclusion of the Report is that since flexibility is not costless,
exercising restraint is beneficial. Transparency and effective monitoring may
make a decisive contribution to help manage trade policy, especially in adverse
economic circumstances. Free-flowing information on policies affecting trade is
essential for cooperation among countries seeking to manage the crisis.
Comprehensive and timely notification of trade contingency measures to the
relevant WTO bodies is needed to ensure proper monitoring.
> Problems viewing this page?
Please contact email@example.com giving details of the operating system and web browser you are using.