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From Prof Simon J Evenett.

Sir, Martin Wolf’s column (“Globalisation in a time of transition”, July 17) repeats several misconceptions about beggar-thy-neighbour policies taken since the crisis began. He appears to have bought the Group of 20’s self-serving line on trade, that it has been one area of successful policy
co-operation. The facts belie this.

Tariffs, quotas and “unfair” trade investigations are not the only ways to tilt the playing field in favour of domestic companies. Less transparent means exist that don’t leave a smoking gun and tend not to provoke trading partners. Coupled with the longstanding condemnation of overt protectionism, in recent years tenacious policy makers have resorted to all manner of financial incentives and non-tariff barriers.

The FT’s extensive coverage of the European Commission’s investigation into imports of Chinese solar panels is one exception that proves the rule. Brussels’ step was too blatant for Beijing to ignore, hence the latter’s retaliatory investigations into European wine. Brussels is learning fast, however and, with Beijing, is in the process of negotiating a murky set of export restrictions and minimum price undertakings. It is because the details are so mind-numbing that few specialists will pick up on it and the polite fiction of G20 restraint will be maintained.

Mr Wolf makes much of the recovery of world trade since 2009. Has it not occurred to him that the extensive resort to financial incentives could have contributed to trade’s bounce back? For example, China has so ramped up its regime of export incentives that a detailed analysis has shown that more than $1tn of its trade is eligible for support. These incentives help Chinese companies undercut rivals abroad.

That so many attempts to tilt the playing field in favour of domestic companies involve policies covered by weak or no World Trade Organisation rules suggests that the latter merely altered the composition of crisis-era protectionism. Any government determined to help domestic interests that feels completely penned in by WTO rules is either poorly advised or pretty unimaginative.

As for the success of the EU’s rules during the crisis, Mr Wolf overlooks the obvious. European rules on subsidies to companies were suspended at the beginning of the crisis, in response to pressure from the large member states. Nearly 300 trade-distorting subsidies have been implemented by EU member states, the vast majority outside the financial sector. In times of crisis it is binding rules that buckle under pressure, not governments.

All in all, to regard trade policy in recent years as a success is misguided. No doubt that line will be parroted in the run-up to the G20 summit in September. The battle for open borders will be won or lost in national capitals, not at summits.

Simon J Evenett, Professor of Economics, University of St Gallen, Switzerland

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