World Bank Chief Warns Against Protectionism

Robert Zoellick spoke with finance ministers in Viña del Mar, Chile.
Robert Zoellick spoke with finance ministers in Viña del Mar, Chile. (By Santiago Llanquin -- Associated Press)
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By Thomas Heath
Washington Post Staff Writer
Saturday, July 4, 2009

World Bank President Robert B. Zoellick warned at a meeting with Latin finance ministers in Chile yesterday that trade protectionism could threaten recovery from a global recession.

Restrictive trade measures could lead to the sort of tariffs that worsened the Great Depression, Zoellick said. A recording of his remarks was provided to The Washington Post by the World Bank.

"It seems appealing in countries to buy their own national products," Zoellick said in remarks delivered in Viña del Mar. "Buy America. Buy Canada. Buy Chile. Buy China. But that's the road to the problem that exacerbated the downturn in the 1930s and led to the Great Depression."

The Smoot-Hawley Tariff Act of 1930, which raised tariffs on thousands of goods imported into the United States, is widely cited by historians and economists for having deepened and prolonged the Depression.

A World Bank report issued in March underscored a "worrying" trend toward protectionism as countries try to shield native industries from the effects of the global contraction.

Argentina, for example, added licensing requirements on goods such as auto parts and toys, creating more bureaucracy for exporters. China and India have increased tax rebates for some exporters, which critics call a subsidy for their products abroad. The European Union has announced export subsidies on certain farm products.

The World Bank has said that such protectionist measures could also weaken global trade, which the bank said is facing its steepest decline in 80 years as demand dries up.

"Some of these measures are permitted under international trade rules, but nevertheless they can restrict trade," Zoellick said. "What I cautioned was that while so far the restrictive trade measures are a low-grade fever, not a full influenza, that one has to be careful that the temperature of the fever doesn't increase."

Zoellick warned that because unemployment is a lagging indicator, it is likely to rise even as economies recover, which in turn could lead to more protectionism.

"Unemployment puts political pressure on governments to take actions," he said.

Zoellick said protectionism was discussed at the meeting of Latin American finance ministers he attended in Chile, but he gave no details about the discussion, the Associated Press reported.

The World Bank intends to help finance $50 billion in trade in the next three years to help commercial financing for trade rebound from the global downturn, according to the Associated Press. About $12 billion of that will be destined for Latin America.

On Monday, Zoellick plans to attend a meeting at the World Trade Organization headquarters in Geneva, where the agenda is scheduled to include a discussion of how to connect aid and development with the goal of taking advantage of lower trade barriers.

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