Developments in trade policy, 1998-99

Two years ago the “Asian financial crisis” erupted in Thailand, spread rapidly to other countries in the region, and affected general investor sentiment in those and other developing countries and transition economies, notably Russia in mid-1998 and later Brazil. Output and employment contracted sharply in the countries most directly affected, in turn adversely affecting trade of their partners and, together with steep commodity price declines, trade of many other developing countries. In the past, such events could have been invoked as a justification for raising import barriers, in an attempt to contain the domestic consequences and shift the burden onto trading partners, possibly provoking countermeasures, and thereby exacerbating the downturn. However, this very serious crisis unfolded in the framework of the WTO, the strengthened multilateral trading system created by the Uruguay Round Agreements. The system, and the good sense of governments, helped to keep markets open, facilitating adjustment and providing a critical element for recovery from the Asian crisis.