There will be a lot to talk about at this weekend's G7 meeting. Obviously, the financial crisis and how to handle it will be an important theme. However, another pressing issue has emerged recently: Growing signs of protectionism. The US stimulus package, for instance, includes a 'Buy American' provision requiring that only US materials be used in construction projects funded by the bill. The Buy American clause has been heavily criticised by both the EU and Japan, so the bill has now been softened. It now states that the US will not violate international trade agreements, including WTO and NAFTA rules. How this will be carried into practice is still uncertain, though.
In Europe, France in particular seems to be cultivating its own interests, with a EUR6bn car industry bailout that requires French companies benefiting from the package to stay in France for at least five years. In a dispute with the Czech Republic, French President Sarkozy said that he would encourage French companies - for example, in the Czech Republic - to move their operations back to France. Naturally, this met with heavy protests from the Czech Republic, and the EU has asked for further information on the planned bailout for French carmakers.
Although protectionism is always looming when the world economy is in a crisis, until recently protectionist pressures were largely contained. Recent develop-ments are ominous, though, underlining how important it is for the G7 to take control of the situation very soon. Waging a trade war would simply obstruct a solu-tion to the global economic crisis and be much like scoring a huge own goal - witness the Great Depres-sion of the 1930s, when protectionism just made mat-ters worse.
