The United States has done it and so has the European Union, and other countries too. And since the beginning of the year, countries around the world have been implementing protectionist measures, World Trade Organization Director General Pascal Lamy said, warning that this could have a negative impact on trade. Lamy, in a report to WTO members from the Geneva-based group, said he noted increases in tariffs, non-tariff measures, and anti-dumping actions.

The EU had previously warned US President Barack Obama not to take protectionist attitudes toward subsidising or propping up the ailing American auto industry, even while Germany, France and Italy said they would do exactly that, with supporters saying that was protection, but not protectionism, which could surface when Obama is in London this week for the G20 economic summit of world leaders. The WTO predicted global trade would drop by nine percent, the most in over 60 years.

The organisation has also warned that trade finance, the credit needed for about 90 percent of international export trade, was starting to dry up, creating particular concerns for developing markets. Addressing the stimulus packages some countries have introduced to address the economic downturn, Lamy said, that these would aid economic growth by increasing demand, but some contained elements that favoured domestic goods and services. He said that some measures could lead to long-lasting effects, beyond their initial intended result of helping protect local business and jobs during the slowdown and recessions, creating “uncompetitive industries and sectoral overcapacity.”

Recently, some countries have issued bail-outs and other assistance plans for their car manufacturing industries. In his previous report at the beginning of the year, Lamy said minimal protectionist measures had been introduced, but now warned that this had changed. “The danger today is of an incremental buildup of restrictions that could slowly strangle international trade,” Lamy said, noting that this could hamper economic recovery. While the WTO has rules for its members on how high they can raise tariffs or boost subsidies, many countries keep their applied rates below the ceiling, giving them varying amounts of room to manoeuvre.

This means states could implement protectionist measures without actually violating their commitments. A recent World Bank report found that 17 of the Group of 20 (G20) leading economies had implemented protectionist measures since pledging not to at a summit last November. In his report, a copy of which was obtained by the German Press Agency Deutsche-Presse-Agentur (dpa,) Lamy called for the completion of the Doha Round of trade talks and said that, pending the conclusion of negotiations, countries should not use new trade restrictions and trade-distorting subsidies. Many are considering the current downturn to be the worst since World War II, raising concerns that counties might react in the same way they did in the 1930s.

During the Great Depression, the United States implemented protectionist moves which provoked tit-for-tat retaliatory reactions across the globe. Lamy said there was no indication of an imminent descent into “high intensity protectionism,” but warned of creeping measures. At the same time, he noted that some nations had introduced trade liberalisation policies in the past six months, which he welcomed. The WTO currently has 153 members, with others in the process of joining. The WTO said contraction in developed countries would be particularly severe, with exports falling by 10 per cent this year, while in developing countries exports would shrink by some two-three percent. Global trade has been growing consistently since 1982.

In 2008, estimates said, global trade grew by two percent - the slowest rate since 2001- but this was mostly due to growth in the first half of the year that tapered off in the last six months, as the financial crisis spread across the world economy. Last year’s growth “was well down on the six percent volume increase posted in 2007.” Developed economies posted modest growth of 0.8 percent. Germany was the world’s leading merchandise exporter last year, shipping USD 1.47 trillion worth of goods, followed by China. The auto industry was said to be one of the hardest hit sectors by the downturn. International Monetary Fund (IMF) estimates earlier this year had predicted a trade decline of nearly three percent for 2009.

“As demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries,” Lamy said in the statement. Poorer nations “are far more dependent on trade for growth” than industrialised countries, according to the WTO. The WTO predicted the first decline in world production since the 1930s. Since the worsening of the crisis in September, “real global output growth slowed to 1.7 per cent, compared to 3.5 percent in 2007, and is likely to fall by between one and two percent in 2009.” “As a consequence, many thousands of trade-related jobs are being lost,” said Lamy.

He sounded a warning against protectionism, which is on the rise. “We must be vigilant because we know that restricting imports only leads your trade partner to follow suit and hit your exports,” Lamy said. He said that, “In London, G20 (Group of 20) leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure, which will render global recovery efforts less effective.” The WTO said that predicting trade levels is “unusually difficult” amid turbulent world markets and uncertainty about the course of the global economy, but there “has been little cause for optimism in the outlook for trade in 2009.”