World trade suffers biggest drop since WWII

(AFP PHOTO/ THOMAS COEX)

Global trade last year suffered its biggest collapse since World War II, an unprecedented 12 percent drop according to new 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," Lamy said, and a steep downwards revision from the WTO's most recent estimate, in December, of 10 percent.

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 it is short-term or sustainable.

The massive contraction makes it "economically imperative to conclude" stalled international free trade talks 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.

These include 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 last year's trade "freefall" 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 said, 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 treaty talks was essential to re-booting the global economy after recession.

Lamy said getting agreement on Doha is a "challenge" but said the world was "80 percent" there.

He also said he "wouldn't venture any prediction" on when Russia would come on board.

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.

On Wednesday, Australia resumed bilateral free-trade talks with China after a 14-month gap.

Speaking the previous evening at the European parliament, Lamy said Europe could speed up Doha progress if it made its position clearer on fisheries subsidies.

"This is a candidate for a bit of poking on your side," he said.

However, he also admitted that agricultural subsidies would remain at levels up to four times higher than in industry, as a "contribution to the problem of food security."

The EU and the US are each under greater pressure now than when negotiations were first launched.

Recent data has also shown US consumer confidence lower than expected and zero percent growth in the fourth quarter for EU giant Germany.

Bank of England governor Mervyn King also on Wednesday expressed worries over the health of its key trading partner, the 16-nation eurozone economy, which is suffering on markets amid heavy Greek debts.

rt-ylf/dt