G-20 Leaders Reject Protectionism as Trade Barriers Proliferate

April 2 (Bloomberg) -- World leaders today reiterated their rejection of protectionism, failing to take a tougher stance on proliferating trade barriers that threaten to deepen the global financial crisis.

After meeting in London, the heads of the Group of 20 nations vowed “to do whatever is necessary to promote global trade and investment and reject protectionism.” That pledge is almost identical to one made at a Nov. 15 summit where they decided to “underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainly.” Since then, 17 G-20 members have implemented 47 trade restrictions, a March 1 study by the World Bank showed.

“They are merely paying lip service,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by telephone. “My fear is we are going to see a lot more barriers go up as economies get worse.”

Mounting protectionism will lead to a 9 percent drop in global trade this year, its first decline since 1982, according to the World Trade Organization. Led by the U.S.’s $17.4 billion bailout of General Motors Corp. and Chrysler LLC, subsidies for the car industry rose to more than $48 billion worldwide, according to the Washington-based World Bank.

While developing countries such as Brazil have been outspoken on the issue, with President Luiz Inacio Lula da Silva calling it a “drug,” there are few signs their warnings are being heard from the world’s biggest to smallest nations.

Ecuador

Ecuador tops the list of culprits in increasing duties on more than 600 products from shoes to cell phones as the strengthening U.S. dollar, the country’s currency, makes imports cheaper and crushes local manufacturing. The U.S. included a “Buy American” clause in its $787 billion stimulus package passed last month.

The G-20 leaders today reaffirmed “the commitment made in Washington to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions or implementing WTO-inconsistent measures to stimulate exports,” the G-20 statement said. “In addition, we will rectify promptly any such measures. We extend this pledge to the end of 2010.”

History points to the potentially catastrophic impact of protectionism amid an economic slump. The U.S. Smoot-Hawley Tariff Act of 1930 increased duties on more than 20,000 goods, inviting retaliation by other countries. Within two years of the law’s enactment, global trade declined 70 percent.

Higher Stakes

Today the stakes are higher. The simple average of trade-to- gross domestic product stands at 96 percent compared to 55 percent in 1970, an indication of how supply chains have spread across borders, the World Bank says.

Still, there’s time to reverse course, beginning with a conclusion later this year of the stalled Doha round of global trade talks, said Stephen Timms, a U.K. Treasury minister.

“Our overview is that the worst possible direction to go in at the moment is a protectionist direction,” Timms told reporters.

The G-20 represents 85 percent of the world economy.

To contact the reporters on this story: Joshua Goodman in London at jgoodman19@bloomberg.net; Flavia Krause-Jackson in London at fjackson@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net