The Hindu Business Line : The dilemma over trade

The ILO Director-General, Mr Juan Somavia and the WTO Director-General, Mr Pascal Lamy... Policy coordination among nations is a must to combat the consequences of the slowdown.

Ranabir Ray Choudhury

The most important bit of evidence on the observed trend that the current international economic crisis will hurt the development prospects of the poor countries much more than that of the rich economies has been provided by a recent ILO report on unemployment around the world in recent times. An end-January summary of the report — the Global Employment Trends — kicks off with the statement that the crisis is expected to lead to a dramatic increase in the numbe r of people joining the ranks of the unemployed, working poor and those in vulnerable employment, the extent of the increase being at nothing short of a critical level.

‘Global jobs crisis’

In terms of figures, the report says global unemployment in 2009 could increase over 2007 “by a range of 18 million to 30 million workers, and more than 50 million if the situation continues to deteriorate”. The chilling remark is also made that if the situation worsens, “some 200 million workers, mostly in developing economies, could be pushed into extreme poverty”. Setting the perspective right, the ILO Director-General, Mr Juan Somavia, said that the findings of the report were realistic and not alarmist and that there was no doubt whatever that “we are now facing a global jobs crisis”.

In the same breath, Mr Somavia scored a point for an ongoing ILO programme, namely, the Decent Work Agenda — which the organisation has been pursuing with impressive results ever since he took up the reins in Geneva some years ago — when he said that the economic crisis was underscoring the relevance of the programme. Among other things, he explained that there were signs of “many elements of this Agenda in current measures to promote job creation, deepening and expanding social protection and more use of social dialogue”. In the fitness of things, he urged the April meeting in London of the G-20 group of countries “to urgently agree on priority measures to promote productive investments, decent work and social protection objectives, and policy coordination”.

Clearly, “policy coordination” among nations will have to be at the heart of any meaningful and effective effort to combat the consequences of the slowdown, a point that has also been emphasised by the WTO Director-General, Mr Pascal Lamy. Like Mr Somavia, he too called for concerted international action which would effectively counter the problems of the “G-153”, that is, the entire membership of the WTO, and not just selective groups. Among other things, he told the TPRB that the seriousness of the global economic situation “demands that we make a collective effort to improve the prospects for an early recovery”.

While the ILO has its Decent Work programme, the WTO currently is hitched on to the Doha Development Agenda (DDA), which led Mr Lamy to say that completion of the DDA “is by far our most important contribution in that respect. It is also the surest way we have of guarding our individual trade interests and the multilateral trading system against the threat of an outbreak of protectionism”.

Trade barriers

While addressing the WTO General Council, Mr Lamy spelt out the basic reason why trade could not be allowed to fall a victim to the instinctive response on the part of nearly every country to put up trade barriers in an effort to protect jobs at home. He said, with ample reasonableness, that “trade, with its multiplier effect must be an integral part of the stimulus packages that are being adopted”. To quote Mr Lamy: “Stimulating internal demand has an impact on imports, and there is a danger that discrepancies in the size and the injection of public funds may generate pressures to reserve their benefits for domestic operators. Such a ’go-it-alone’ would no doubt make the situation worse. To paraphrase Mahatma Gandhi, who said ‘an eye for an eye makes the whole world blind’, today we could say that ‘if it is a job for a job, then we will have massive unemployment’”.

State of play

Exhortations such as those by Mr Somavia and Mr Lamy are not merely well-intentioned and well-conceived, they are indispensable to an early recovery from the worst bout of economic recession since the 1930s the world is currently encountering.

But what exactly is the state of play at the ground-level where the real battles are going to be fought and the prospects of an early economic recovery settled? Despite the fresh wind of activist economic policy-making which the Obama Administration has unleashed, there are signs that the micro pressures on national policy (wherever) may win over the pious, and sensible, macro platitudes being aired at the multilateral, and even national, levels.

Thus, China has breathed fire and brimstone against the steps the US has taken to curb textile imports, a measure which is already affecting Indian supplies to the rich American market. Beijing has also given notice of challenging New Delhi’s six-month restrictions on Chinese toy exports. The Union Commerce Minister, Mr Kamal Nath, has gone on record against the “Buy American” clause in the mammoth US stimulus package which, according to the Minister, stipulates among other things that US firms seeking Government aid will have to buy steel products from domestic suppliers.

The H1-B restrictions on IT workers have been well-publicised although Washington has made every effort to cover up the protectionist element embedded in the measure. Then again, the US International Trade Commission has been asked by a group of Senators to enquire into the effects of tariff and non-tariff steps taken by New Delhi on US farm exports to India, which is yet another move which must inevitably fuel trade policy-friction among trading partners.

Multilateral initiatives

The nuts-and-bolt situation on the ground, therefore, is not encouraging for concerted action which, among other things, has led Mr Kamal Nath, to suggest that protectionism “is not a one-way street” and that it is also “not good for the world”.

And yet, there is no escape from the fact that unless there is some amount of unity in framing financial and trade policy affecting all nations, the chances of fighting the global slowdown effectively are not promising.

Mr Lamy was somewhat optimistic when he said early this month that there was only “limited evidence of increases in trade restricting or trade distorting measures that have been taken in the context of the financial and economic crises”.

He, of course, added that his sixth sense told him that “we are still at only an early stage in the policy response around the world to the economic recession, and I believe that we must remain vigilant”.

The problem is that the “vigilance” may be more pronounced on the part of those who feel that there should be a clear limit to the sacrifices being made by domestic segments of national economies in trying to get “multilateral” initiatives to counter the global recession working.

At least in the case of India, what makes the scenario rather gloomy is the proximity of national elections, a prospect which could easily lend itself to the encouragement of electoral lobbies, resulting in sectional appeasement, at the expense of sensible multilateral initiatives which would most certainly reduce future pain for the Indian economy itself, perhaps in 2010.

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