* Legal trade measures can boost protectionism, WTO says
* Use increases in economic downturn
By Jonathan Lynn
GENEVA, July 22 (Reuters) - Legal "safety valves", allowing countries to suspend or waive trade commitments, can damage the global economy if abused for protectionist purposes, the World Trade Organisation said on Wednesday.
In its annual World Trade Report, the WTO examined the use of "contingency measures", a topic it said was particularly timely given fears of protectionism in the global crisis.
The global trade watchdog has been monitoring restrictive measures taken by countries -- both those that violate trade agreements and those that are allowed under existing deals.
In the latest assessment, issued this month, WTO Director-General Pascal Lamy said governments were unfairly blocking trade in response to the downturn.
"Contingency measures are more likely to be used in difficult economic circumstances. However, the evidence cannot preclude the possibility that such measures are sometimes used as a protectionist device," the WTO said.
"At a time of global crisis, a proliferation of such measures among trading partners would have adverse economic effects with few of the positive offsetting advantages that might otherwise by invoked to justify such measures."
An analysis of the measures concluded that their design should aim to limit circumstances in which they can be used for protectionism and that their design should not undermine trade agreements.
The WTO noted it was easier to track the contingency measures analysed in the report than to identify trade-restrictive measures or subsidies embedded in financial rescue and fiscal stimulus packages favoured by rich nations and some emerging ones such as China and Brazil.
TAXES AND TARIFFS
Protectionism can deepen and prolong an economic crisis even if it does not cause a downturn, Lamy said in an introduction to the report, noting that restrictive trade policies did not actually trigger the 1930s Great Depression.
"A seemingly attractive short-term solution of keeping production and consumption at home soon becomes a millstone around a nation's neck, the more so when trading partners retaliate in kind," he said.
The WTO examined the use of contingency measures such as safeguards, antidumping and countervailing duties, as well as measures such as renegotiating tariff commitments, export taxes and increases in tariffs to the maximum agreed ceiling.
Economic research showed that the use of such measures -- especially antidumping -- increases during downturns, it noted.
Antidumping is when a government imposes a compensatory duty on imports it says are being sold for less than they cost at home -- and is a frequent cause of trade disputes.
In the latest such case, China plans to challenge antidumping duties imposed by the European Union on Chinese screws and bolts.
However, research by Craig VanGrasstek of Harvard University shows that the number of requests by U.S. businesses for antidumping measures is likely to halve in the current fiscal year from 24 in 2008 and to a quarter of the average of 48 a year in the 1980s, suggesting the remedy is not being abused for protectionism.
Contingency measures offer governments a temporary get-out from trade commitments and so allow them to sign up to deeper opening while reducing economic and political opposition.
They let governments adjust to changing economic conditions, a health or environment emergency, or technological developments abroad that put a domestic industry at a disadvantage.
But they tend to tackle problems in a single industry while neglecting their effect on the overall economy, the WTO said.
For instance, antidumping duties can buy time for domestic companies but hurt consumers and other firms relying on imported inputs by raising prices.
Countervailing duties, imposed to compensate for subsidies in other countries, tend to help domestic producers rather than benefiting the economy as a whole or discouraging subsidies elsewhere, the WTO said. (For the WTO report go to www.wto.org)