Even though the current recession is not the Great Depression, certain parallels can be drawn.  As learned from the 1930s, during economic recessions protectionist measures become more likely.  There is a high awareness of this threat both in politics and the public, and the WTO is closely following crisis responses of its member states, publishing reports on protectionist barriers.  In the 1930s the leading industrialized nations responded to the crisis by imposing trade barriers on imports and raising the tariffs. This time protectionism has been kept at bay, at least when it comes to tariff barriers. However, the economic stimulus packages passed by major industrialized countries contain subsidies and buy-local clauses that have the potential to seriously distort competition and thus harm international trade.

Not all subsidies are bad.  There are different forms of subsidies with different effects on domestic markets and international trade. They are necessary to stabilise consumption and production, help weakened economies to recover, stabilize international trade, etc. However, some of them pose a great danger to distort trade by creating unequal conditions of competition.  Contrary to limiting the use of tariffs, the WTO’s toolbox to controlling subsidies is less well equipped. Within the EU, subsidies are causing tensions but the European Commission has more advanced instruments and more power to intervene than the WTO has in the global context. Read the rest of this entry »