The collapse of global trade, murky protectionism, and the crisis:

The collapse of global trade, murky protectionism, and the crisis
and distort international commerce the least, the burden of proof being on the implementing
country. By creating a benchmark and encouraging transparency, benign
interventions may be more readily distinguished from discriminatory measures. With
active surveillance, conducted by the press, by independent experts, and by G20 governments
themselves, better practices would be encouraged and the temptation to
retaliate dampened.
A more ambitious approach would be to define the types of subsidy that are allowable
(bearing in mind that there are different types of subsidy and methods for allocating
subsidies), the circumstances under which they could be imposed and should
be withdrawn, including in principle a time limit on the use of such subsidies in any
given instance. This would require negotiation, which inevitably takes time. Still
ongoing deliberations on this matter, plus the inevitable stream of press reports, will
reveal sooner egregious proposals for new bailouts and peer pressure can follow. In
formulating any conventions the EU's vast experience on state aids, with its struggle
between political expediency and economic principle, could provide a useful starting
point for this deliberation. No doubt other countries' experience with subsidies,
including the withdrawal of subsidies, would be of interest, as would the track record
of the relevant WTO accord.
Another option would be for G20 members to agree to refrain from imposing any
conditions on the recipients of bailouts and state aids that both discourages a firm
from operating solely on a commercial basis and encourages the recipient to discriminate
against foreign commercial entities. For example, this would rule out instructing
recipients to repatriate funds from abroad, to close down foreign factories and
other facilities, to influence outsourcing decisions, and to fire foreign workers first.
Notice that this proposal is not an outright ban on placing conditions on recipients
of state financial support.
Exit strategies
Bearing in mind that bailouts and subsidies appear to be concentrated in certain sectors,
the G20 could commit to establish review groups for each of the major sectors
affected at a specified future date (that is possibly related to the timing of a future
global economic upturn.) The purpose of these review groups would be to encourage
the unwinding of bailout packages and crisis-related subsidy programmes.
Coordinated reductions in subsidies could follow, providing the G20 countries with
sectoral "exit strategies" after the crisis.
Collective post-crisis reviews of selected sectors could be complemented by six
monthly national reviews of the effectiveness of bailout schemes implemented. This
would force an objective evaluation of the impact of each national scheme. It might
also foster serious consideration of alternatives to the bailout package in place, thus
undermining the assumption these interventions must last forever.
About the authors
Simon J. Evenett is Professor of International Trade and Economic Development, University
of St. Gallen, Switzerland and Programme Director of the International Trade and Regional
Economics Programme at the Centre of Economic Policy Research CEPR. Professor Evenett is
an expert in the commercial policy and strategies of the USA, EU, and the rising economic
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