Trade-restrictive measures are outstripping trade-facilitating measures among World Trade Organisation (WTO) members. The latest WTO report on trade developments highlights that 154 trade-restrictive measures were initiated by its members during the mid-October 2015 to mid-May 2016 review period.
This is a 47% increase from the previous review, and it averages 22 trade-restrictive measures a month compared to the monthly average of 19 trade-facilitating measures (mostly against dumping practices) observed in the same period. “The report shows a worrying rise in the rate of new trade-restrictive measures put in place each month — hitting the highest monthly average since 2011,” says WTO director-general Roberto Azevêdo.
The rise in protectionism is fuelled by various factors, including rising anti-globalisation sentiments, concerns over a vulnerable global economy, and countries’ desire to protect themselves against the multilateral trade agreements that have been negotiated in the past few years and are close to coming into effect that some countries perceive as damaging to their domestic economies.
Taken together, these elements create a challenging environment for the WTO to fulfil its mandate of promoting and enabling free trade. “The current resistance against market-oriented policies makes it harder for the WTO to come to multilateral trade deals. The WTO has succeeded with the 2013 Bali deal on bringing down the costs of customs procedures and the extension of the Information Technology Agreement in 2015. But the Bali deal, just as large multilateral agreements like the Trans-Pacific Partnership, warrant ratification by national parliaments,” says Raoul Leering, head of international trade research at ING.
Once imposed, trade-restrictive measures are likely to be upheld in the following years, as the WTO report shows that, out of more than 2,800 such measures recorded since October 2008, only 25% have been removed. The impact of trade-restrictive measures on global trade growth is however limited. According to Rebecca Harding, economist and co-founder of Equant Analytics, there are various factors restricting global trade, and tariffs aren’t the most significant one. “The increase in tariffs in the last couple of years has been a function of the slowdown in trade as much as a catalyst for the slowdown in trade,” she tells GTR. “Tariffs are increasing but because they aren’t in the world’s biggest trading nations, the impact they have on global trade is quite limited.”
The effect on trade finance is more complex. “Increasing trade barriers and restrictions on foreign investment increases the risks involved with financing trade flows. This will drive up the price of trade finance and that could lead to less demand for this type of finance. However, as long as companies are willing to pay the price for risk insurance, it means higher margins for those banks that offer trade finance products,” says Leering.
Tariffs add another layer of complexity to the already challenging compliance and due diligence processes. “Tariffs impose costs, so it’s another thing for trade finance professionals to be thinking about in the mix of compliance,” says Harding. According to her, in environments where protectionist measures may be pushing prices up, export credit agencies are crucial partners in facilitating trade finance deals.