Monday, March 23, 2009

Trade Barriers Rise as the Recession’s Grip Tightens

The New York Times, March 23, 2009  - By MARK LANDLER

WASHINGTON — After repeated pledges by world leaders to avoid erecting trade barriers, protectionism is on the march, provoking nasty trade disputes and undermining efforts to plot a coordinated response to the deepest global economic downturn since World War II.

From a looming battle with China over tariffs on carbon-intensive goods to a spat over Mexican trucks using American roads, barriers are going up around the world. As the recession’s grip tightens, these pressures are likely to intensify, several experts said.

The surge in protectionism is casting a shadow over an economic summit meeting of world leaders scheduled for London on April 2. At the last such gathering, in Washington in November, former President George W. Bush persuaded the Group of 20 members to commit to protecting free trade — whatever the pressures caused by faltering economies and lost jobs. The members include industrialized and developing nations, and the European Union.

“No sooner was the G-20 statement issued than it was breached,” said Daniel M. Price, an official in the Bush administration who helped negotiate the agreement. “Instead of just talking about trade liberalization, countries need to take immediate steps to show they mean it.”

Far from heeding their pledge not to erect new barriers for 12 months, many countries have raised import duties or passed stimulus measures with trade-distorting subsidies. The World Bank, in a report last week, said that since the Washington meeting, 17 members of the Group of 20 had adopted 47 measures aimed at restricting trade.

Russia has raised tariffs on used cars. China has tightened import standards on food, banning Irish pork, among other things. India has banned Chinese toys. Argentina has tightened licensing requirements on auto parts, textiles and leather goods. And a dozen countries, from the United States to Australia, are subsidizing embattled automakers or car dealers.

The most vivid example of that policy is the “Buy America” provision in the stimulus package, intended to ensure that only American manufacturers benefited from public-spending projects. The Obama administration persuaded Congress to water it down, and Mr. Obama has taken up Mr. Bush’s warnings about the dangers of protectionism.

But pressures are building on other fronts. Last week, the energy secretary, Steven Chu, said he favored tariffs on Chinese goods if China did not sign on to mandatory reductions in greenhouse gas emissions — underscoring how the “green economy” could be the next trade battleground.

Mr. Obama signed a $40 billion spending bill that scrapped a program enabling Mexican trucks to haul cargo over long distances on American roads. Mexico retaliated by imposing duties on $2.4 billion worth of American goods — everything from pencils to toilet paper. The trucking dispute has its roots in the North American Free Trade Agreement, or Nafta, which guaranteed Mexico, Canada and the United States access to one another’s highways for cargo transport by 2000.

While resistance in Congress to Mexican trucks is long-running, based in part on safety and environmental concerns, American officials worry it will cause broader frictions with Mexico.

“It’s very worrisome to the Mexicans because it’s seen as protectionism,” said Thomas A. Shannon Jr., the assistant secretary of state for Western Hemisphere affairs, who is working with other officials to devise a new pilot program for trucks that will satisfy critics in Congress.

Mexico’s tariffs affect 90 products from 40 states, accounting for less than 2 percent of American exports. Mr. Shannon said it underscored the breadth of the trading relationship.

Even without protectionism, the synchronized global downturn is likely to result in the largest annual decline in world trade in 80 years, according to the World Bank. While the bank said it was difficult to quantify the effects of the new barriers, they could aggravate that decline.

“It’s very easy for this to spin out of control and move to trade wars that could be quite devastating,” said Richard Newfarmer, who wrote the report and is the bank’s special representative to the World Trade Organization.

The World Bank president, Robert B. Zoellick, warned recently that 2009 could be a “very dangerous” year, as leaders faced rising calls for protection from economically insecure populations. He called on the World Trade Organization to monitor protectionist actions and publicize them. But not all the measures violate the body’s laws.

The stimulus plans that the United States is pushing Europe to adopt can also distort trade, depending on how much they rely on subsidies. In November, the Group of 20 agreed to “refrain from raising new barriers to investment or to trade in goods and services,” regardless of whether the measures complied with trade laws. Mr. Price, the former Bush administration official who is now a trade lawyer with the firm Sidley Austin, said the leaders should go further in London.

He proposed having the W.T.O. study the impact on trade of stimulus programs, much as the International Monetary Fund has been charged with studying their economic impact.

Beyond that, he said, the leaders could agree to eliminate tariffs and other barriers on “clean” products. So far, the climate debate has brought to the surface potentially divisive issues, like whether countries should impose tariffs on exports with high carbon emissions. Chinese officials said they would view such acts as a violation of World Trade Organization agreements.

“A lot of people are worried that U.S. protectionism is going to take a green face,” said Trevor Houser, an expert in energy and climate issues at the Peterson Institute for International Economics in Washington.

Some trade skeptics caution against making too much of the link between the economic crisis and protectionism. Lori Wallach, director of the global trade division at Public Citizen, a consumer advocacy group, noted that many countries had not raised tariffs to the highest levels permissible under trade laws.

With so much else on the agenda in London, it is not clear how much time the Group of 20 will be able to devote to trade. Mr. Price expressed disappointment that after a preparatory meeting of finance ministers last week in Britain, the Group of 20 did not issue a stronger statement about protecting trade.

Given Mr. Obama’s ambiguous positions on trade during the campaign — he favored renegotiating Nafta — economists praise him for holding the fort against protectionism so far. But as stimulus programs begin to take hold, they could encourage consumers to buy more imported goods, further fanning antitrade sentiment.

“The U.S. is in such great danger of backing away from free trade,” said Kenneth S. Rogoff, a professor of economics at Harvard. “The next two years could be a disaster for free trade.”