Trade policy flexibilities are not harmless. The Report highlights the importance to distinguish between the initial motivations for introducing flexibilities in a trade agreement and the consequences of using such flexibilities. The fact that trade contingency measures are necessary to ensure further opening and stability of a trade agreement does not mean they are without cost. First, in the absence of market failures, trade restrictions will cause losses in economic welfare. Second, flexibilities may be used to backslide on previous commitments.
“The challenge in designing contingency measures is to strike a balance between flexibility and commitments. Too much flexibility may undermine the value of commitments but too little may render the rules unsustainable. It is for this reason that the design of contingency measures is frequently a central element of negotiations”, said Director-General Lamy.
The analysis of economic effects of the use of contingent measures reviewed in the World Trade Report suggests two main conclusions. First, the design of such measures should aim at limiting the circumstances when they can be used as a protectionist device. Second, the design of contingency measures should not undermine the role of trade agreements. Contingency measures should not be designed in a way that upsets the balance of a trade agreement nor which undermines governments' objective of making a binding commitment to the private sector.
The Report also analyses whether WTO provisions provide a balance between giving governments necessary flexibility to face difficult economic situations and limiting the use of these measures for protectionist purposes. In so doing, the Report focuses primarily on safeguards, such as tariffs and quotas, which may be introduced to counter increased imports deemed injurious to domestic industry, anti-dumping duties which can be imposed to respond to alleged injury caused by “dumped” imports, and countervailing duties which can be used to offset foreign subsidies considered injurious to the domestic industry. The Report also discusses policy options, such as the renegotiation of tariff commitments, the use of export taxes, and the increases in tariffs up to their legal maximum ceiling or binding.
One overall conclusion of the Report is that since flexibility is not costless, exercising restraint is beneficial. Transparency and effective monitoring may make a decisive contribution to help manage trade policy, especially in adverse economic circumstances. Free-flowing information on policies affecting trade is essential for cooperation among countries seeking to manage the crisis. Comprehensive and timely notification of trade contingency measures to the relevant WTO bodies is needed to ensure proper monitoring.
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