[ Nippon Keidanren ] [ Policy ]

Protectionism is NOT the solution to the crisis

- Proposal for free trade and economy to restore market confidence -

March 9, 2009

Nippon Keidanren

The international economy has plunged into a worldwide recession after a global financial crisis, and this is having a profound impact on Japan's real economy as well. To emerge from this period of unprecedented economic hardship, Nippon Keidanren is calling upon the Japanese government to quickly take all measures in its power to stabilize and create employment and to stabilize people's livelihoods. It also is calling upon the government to promote national projects to strengthen Japan's medium- to long-term growth potential.

The United States has passed the biggest economic stimulus package in its history, and other countries around the world are drafting and implementing economic measures. These measures should be welcomed as efforts to overcome the economic crisis. Japan and other countries, however, must show great restraint lest they create unintended protectionism by placing too much emphasis in their economic measures on securing employment and protecting industry in their own countries.

At the Summit on Financial Markets and the World Economy held in November last year, leaders of the G20 pledged that they would refrain over the next 12 months from taking new protectionist measures. In the private sector, Nippon Keidanren and other G8 business organizations agreed at the G8 Business Summit last December that their nation's fiscal stimulus measures should comply with the WTO and other agreed international rules and refrain from serching for competitiveness at other countries expense.

Despite these international arrangements agreed by the public and private sectors, countries have taken measures since then that are protectionist in impact, including increasing tariffs, bailing out specific industries, and requiring that goods for public works projects be procured domestically. This is truly a grave situation.

As we learned in the 1930s, protectionist measures by a single country invite retaliation from other nations and the resulting chain of protectionist moves further aggravates the economic crisis.

World economic growth since the end of World War II has been sustained by the multilateral free trade framework under the GATT/WTO system, and policy measures to help us emerge from the current world recession must not undermine the open trade framework based on agreed rules and restoration of market confidence. As WTO Director-General Pascal Lamy said, "In these times of serious economic crisis, our biggest challenge today is to ensure trade is part of the solution and not part of the problem.".

In light of this situation, Nippon Keidanren believes that national leaders must back their strong commitment to rejecting all protectionist measures by agreeing to unified multilateral actions, such as those below, at the G20 London Summit on April 2nd. The actions should be fleshed out with concrete steps.

It is particulary important that G8 leaders, including the leader of Japan, a country that depends on trade for much of its growth, play a pivotal role. From this perspective, we appreciate that, under the initiative of U.S. President Barack Obama, it has been guaranteed that the "Buy American" provisions in the U.S. economic stimulus legislation will be applied in a manner consistent with United States obligations under international agreements.

1. Implementing Economic Stimulus Measures That Comply with WTO and Other Agreed International Rules

Economic stimulus measures and trade remedies, such as antidumping (AD) tariffs, taken in response to the financial and economic crisis should be implemented in a way consistent with WTO and other international rules, keeping in mind the international impact of the measures. Countries should secure transparency in granting subsidies to specific industry and in government procurement and adopt the principle of national treatment.

2. Standstill on Applied Tariff Rates

Countries should commit to a tariff standstill in applied rates on goods at their current levels and not raising them. Countries should confirm that raising applied tariff rates within the range of the WTO bound rates does have the negative effect of protectionism on international trade even if it may not be in violation of the agreement. It would be desirable for countries that are not members of the WTO to also refrain from raising tariffs from their current levels in light of the international economic situation.

3. Refraining from Introducing New Non-Tariff Barriers

Countries should not introduce new domestic measures or regulations that would have the effect of restricting trade and investment. Countries should refrain from introducing technical regulations unless transparency and rationality are ensured. Countries should also pledge not to retreat from the current level of liberalization in trade in services.

4. Striving for an Early Conclusion of the WTO Doha Development Agenda (DDA) Negotiations

The most effective insurance against the rise of protectionism is the maintenance and strengthening of the multilateral free trade system centered on the WTO. G20 leaders should demonstrate strong political leadership for the early conclusion of the DDA negotiations.

5. Improving the Monitoring of Trade and Investment Policies

Countries should support the strengthening of WTO and OECD monitoring of protectionist measures in trade and investment policies and should cooperate in such efforts. They should welcome mutual monitoring (peer pressure) of nations' trade measures by the private sector, as proposed by the APEC Business Advisory Council (ABAC) and others.

6. Expanding Trade Financing Support for Developing Countries

Trade financing to developing countries is dwindling due to the world financial crisis. Developing countries depend on trade for much of their economic growth. To ensure their trade activities are not hindered, countries should expand trade financing support to developing countries by government agencies, private-sector banks, international financial institutes, and regional development banks.

Home Page in English