Economic Diplomacy Programme POLICY BRIEFING 31 March 2011 Loretta Feris 1 AfricAn PErsPEctivEs. GlobAl insiGhts. ExEcutivE summAry G lobal responses to economic recession revealed a trend towards trade protectionism, specifically through ‘bail-out’ measures in the form of large sums of government revenue handed out to specific industries. South Africa similarly responded to the economic crisis by offering rescue packages to affected industries. While they may generate some short-term benefits, these measures erode the efforts of the multilateral trading system to reverse the injurious effects of unilateral trade measures. It may be more advantageous to South Africa and the multilateral trade system to focus on long-term measures, such as increased trade-facilitation that would free up trade and help reverse the contraction of global trade. introDuction The economic recession revealed a global trend towards trade protectionism, replicating the fortification of domestic labour and commercial interests that occurred during previous periods of recession. Although countries employ a wide range of trade protective measures, the ones that have caught everyone’s attention are the ‘bail-out’ measures in the form of large sums of government revenue handed out to specific industries. In the wake of the recession, South Africa adopted similar measures. While not likely to lead to widespread trade restriction and retaliation, these measures place a stranglehold on multilateralism and have the potential to hurt economies, including ironically the economies being parachuted to safety. Furthermore, some of these measures, including those adopted by South Africa, may have the potential to violate multilateral trade rules that were adopted to prevent protectionist measures by members of the World Trade Organization (WTO). rEsPonsEs to thE GlobAl Economic crisis In the wake of the Great Recession, 2 which caused the global economy to plummet Subsidies as an Instrument of Industrial Policy: Are they WTO Compliant? rEcommEnDAtions • Subsidies do not necessarily violate WTO rules, but ‘bail-outs’ do. Therefore, South Africa should carefully tailor any assistance to strategic industries so that maximum benefits are achieved without legal implications. • South Africa should work towards long- term solutions within the multilateral trading system, which would include the promotion of policy space for developing countries to invest in emerging industries, such as green technology. • As measures to free-up trade will generate long-term results, South Africa should create policies aimed at investment in trade-related infrastructure and trade facilitation.