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World trade hit by biggest drop since WWII

World trade hit by biggest drop since WWII in 2009

BRUSSELS - World trade last year suffered its biggest collapse since World War II, an unprecedented 12 percent drop according to new WTO figures, with worrying signs suggesting 2010 threatens only mediocre recovery.

“World trade has also been a casualty of the crisis, contracting in volume by around 12 percent in 2009,” Pascal Lamy, director general of the World Trade Organisation, told an audience in Brussels on Wednesday.

“It is the sharpest decline since the end of the Second World War,” the Frenchman said, and a steep downwards revision from the WTO’s most recent estimate, in December, of 10 percent.

The massive contraction in global commerce makes it “economically imperative to conclude” international trade negotiations, which are at a standstill, in 2010, Lamy told business figures and policymakers at the European Policy Centre, a Brussels think-tank.

The Doha Round of trade negotiations that began in 2001 with a focus on dismantling obstacles to trade for poor nations has been dogged by intractable disagreements including how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs.

Deadlines to conclude the talks have been repeatedly missed, with the latest being the end of this year.

Lamy blamed the “freefall” triggered by a crisis that first struck financial markets in late 2008 on a reduction in demand “across all major world economies” as well as the drying-up of trade financing and rising tariffs or national subsidies.

Some protectionist response “was to be expected,” he sighed, although he maintained that worries of “runaway protectionism” had proved an exaggeration.

Amid vast government deficits, he said the biggest enemy to a sustained pick-up was “intolerably high” unemployment that the International Labour Organisation estimates has hit 200 million people worldwide — 20 million of whom have lost their jobs since the crisis began on Wall Street.

“The political consequences in my view are still to come,” Lamy warned of the so-called jobless recovery, underlining that “keeping international markets open is vital” if negative global economic growth of minus 2.2 percent in 2009 is to be reversed.

He revealed the latest WTO figures in order to underscore his argument that completing the Doha trade treaty begun in 2001 was essential to re-booting the global economy after recession.

While he would give “no forecast” for 2010 trade growth, he insisted a “pickup” is underway, but led by an “overheating” China, could not say whether short-term or sustainable.

With heavy irony, Lamy said getting agreement on Doha is a “challenge for probability inspectors,” but said he was “80 percent” there, although he “wouldn’t venture any prediction” on when Russia would come on board, given it has no “fear” of harming its sought-after raw materials exports.

Along with Brazil, China and India, Russia makes up a quartet of developing economies said to hold the key to conclusion of a deal that would cut agriculture subsidies and tariffs on industrial goods.

However, increasing bilateral ties are also slowing down progress — just on Wednesday, Australia resumed free trade talks with China after a 14-month gap.

In the US and the EU, under greater pressure now during the negotiations than when first launched, indicators remain weak or poor.

US consumer confidence is lower than expected, EU giant Germany posted zero percent growth in the fourth quarter of last year and Bank of England governor Mervyn King on Wednesday expressed worries over the health of the eurozone economy and key trading partner.

The 16-nation eurozone, which posted growth of just 0.1 percent during that period, is going through the worst crisis of its decade in existence, battered by massive debts in Greece that have forced officials to examine the possibility of a bailout.