Trade Policy after the Crisis MA EITEI Graduation, Prague December 5, 2009

2. Trade Policy after the CrisisMA EITEI Graduation, PragueDecember 5, 2009 Ing. Martin TLAPA, MBA © 2009 Ministry of Industry and Trade

3. World economic crisis • More than 1 year from the fall of Lehman Brothers (15.9.2008) - time to think beyond • Fall of international trade later but more dramatic than the fall in global GDP • Global GDP: -5% • Global trade: -20% • Regional differences • Trade is a victim rather than cause • Trade can be one of the tools for recovery

4. As a response to crisis, many countries are taking trademeasures • 401 implemented, 204 pending announced state measures (Global Trade Alert, Sept. 2009) • Only 67 out of 605 trade remedies • Less traditional measures (tariff/quota), more “smart” measures (TDI, state aid, public procurement) • Short-term (stimulus packages, state aids) measures replaced by long-term measures (antidumping, Buy National)

5. “Smart” measures • For trade economists – difficult to asses impact • For trade lawyers – law and rules are one step behind – this fact more pronounced in crisis • Effective for a very limited period of time and only for the implementing country • Add to erosion of international trade rules and decrease in WTO’s readiness for action

6. How many times has your country harmed others? Source: Global Trade Alert, 2009

7. How many times has your country been harmed? Source: Global Trade Alert, 2009

8. Sectors most affected by trade-restrictive measures • Agriculture sector • Iron and steel industry • Consumer electronics • Textiles, clothing and footwear Source: WTO

9. Consequences of the crisis • Image of trouble-free world economy is gone • Importance of responsible and accountable institutions (owners of assets, governments, consumers) • Fall in GDP • Approach to risk • More vigilance

10. Lessons learned from crisis • Developed economies –shift in power (G8 to G20) • Emerging economies China • dependence on exports • from export-oriented strategy to domestic investment of economic infrastructure Russia + exporters of raw materials • Volatility of commodity prices • Need to diversify exports

11. The idea of world trade after the crisis • The world economy and the international trade will not be the same • The pre-crisis status quo is not a solution • Withdrawing the trade-restricting measures must not be the “all exit strategy” • The crisis brought the possibility of creative destruction (J.Schumpeter) …like a legendary Phoenix

12. What next? • Do we need an exit strategy in international trade?

13. NO Fighting protectionism may be more costly than benefits from exit strategy Various factors caused the crisis slump in global demand Protectionist measures: 0.2- 0.8% of trade (OECD) Stimulate thedomestic demand instead Trade harmed indirectly help indirectly YES Revision of rules needed Lowering the overall transaction costs Credibility of WTO Regional and bilateral negotiations undermine multilateral framework Protectionism ties down recovery In financial sector, exit strategy is widely accepted Exit strategy?

14. World Trade: 4 Scenarios Protectionism element Positive outcome (1+2) Exit strategy needed for recovery in the long-term Source: UK World Trade Week, 2009

15. The exit strategy - principles • Crisis may have positive outcome if we change the mindset andact differently • Cooperation – way to go • Doha? climate agreement? • Long-term benefits of international trade: modernisation, innovation and structural change in the economy • Actions to be taken: • 1st step – withdraw trade-distorting measures • Smart rules and environment for smart measures • Make use of positive spill-over effects onto other sectors • Rules must apply to everybody • Consult businesses, consumers and interested parties • Lisbon creates the playing field • Take advantage of the new institutional framework of G20

16. The exit strategy - WTO reform • Reasiness for action • Improved executive power (trade defence, DSU) • Effective rules • Smart rules motivating governments to implement smart measures • Flexibility • WTO should react to developments in the global economy • Discover new trade-related areas • Managing pro-trade domestic measures • Solve the “spaghetti bowl” • Coordinate regional and bilateral trade negotiations on multilateral level • Trade and development • instruments to integrate developing countries to international trading system

17. Thank you for your attention! Ing. Martin TLAPA, MBA tlapa@mpo.cz Ministry of Industry and Trade Na Františku 32, Praha 1 www.mpo.cz

18. Extra slides / notes

19. World trade: 4 scenarios Global Innovation (coordination and scarcity) The scarcity, climate change lead to innovation and cooperation on international scale Scarcity (raw materials, food) leads to trade-restricting measures International cooperation helps partly solving this issue Global Citizen (coordination and abundance) Crisis together with actions taken lead to rule of law in international trade, better supervision More power to global institutions and emerging economies Deglobalisation (fragmentation and scarcity) Lack of coordination leads to recession and various strategies, (economic nationalism, heterogeneous bilateral deals and regional groupings) Space for interventionist policies WTO sanctions, quitting WTO Fragile Alliances (fragmentation and abundance) No significant agreements on trade or climate change and countries with no abundant production factor are being left out. Bilateral deals to gain access to resources Cartels and discrimination