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Economic crisis spurs fear of “WTO monster”

published 5 March 2009 updated 5 March 2009

Concerns are being raised that trade agreements like the WTO could hamper the ability of governments to respond effectively to the growing economic crisis.

Lawrence Herman, an international trade lawyer with Cassels Brock & Blackwell, has warned that governments need to act now to tame what he calls the “WTO monster.”

“The monster is called ‘trade remedies’ and its home is in the World Trade Organization,” Herman wrote recently in a widely circulated op-ed. “The creature comes to life whenever government aid programs are provided that help local industries in their export markets.”

The WTO trade agreements prohibit governments from providing certain subsidies to industries --- subsidies like those that have been recently introduced in economic stimulus packages and industry bailouts. Already, for instance, the European Union has warned that the U.S. bailout of automotive giants Chrysler and General Motors may violate theses subsidy rules. Herman warns that as governments try to rescue their flailing industries and economies, it could set off an endless series of disputes unless there is an agreement on a stand-still to trade challenges.

“[T]rade laws were implemented under the post-Second World War Bretton Woods agreements to combat unfair practices that distorted international trade and inhibited world economic development. The danger is that those same anti-subsidy remedies might be applied perversely to do the opposite in the current global downturn,” he concludes.