The head of the World Trade Organisation (WTO) warned yesterday that the bailout packages designed to help countries through the economic downturn could harm developing countries.

Pascal Lamy, the WTO’s director-general, said that protectionism as a “go-it-alone solution . . . does not work”.

He said that while there had been no dramatic signs of protectionism so far, there had been “small waves” as governments tried to boost economic activity through bailout programmes.

Speaking to Channel 4 News on the eve of the World Economic Summit in Davos, Mr Lamy said he was unsure if the Doha trade accord would be completed this year, adding that there was “some remaining uncertainty on the US position”. He added that the new Obama Administration in Washington was still deciding on the correct trade policy for the United States.

A coalition of leading American exporters, including Boeing, Caterpillar and General Electric, is trying to stop a “Buy America” clause being included in President Obama’s $825 billion stimulus package.

Mr Lamy said that bailouts ran the risk of putting developing countries at a disadvantage. “There are planes that won’t fly, ships that won’t sail, cars that won’t be sold. Does this mean that open trade is wrong? No. It means that there is an adjustment problem between supply and demand.

“And if you look at that from the side of developing countries who, by definition, cannot afford big bailout packages simply because they don’t have the money — let’s not make a system . . . more development-averse.”

His comments came as Lord Mandelson, the Business Secretary, unveiled a £2.3 billion state support package for beleaguered car manufacturers in the UK.

Under the scheme, the Government will offer loans of up to £1.3 billion from the European Investment Bank, as well as guarantees of support of up to a further £1 billion in lending. However, Lord Mandelson was at pains to point out that the package of measures was “not a bailout”.

In a separate report to the WTO’s 153 member states, Mr Lamy said that government bailouts for banks and car manufacturers could trigger trade disputes because of their impact on competition. “It must be recognised that some of the measures at least, which in most cases constitute some form of state aid or subsidy, may eventually have negative spill-over effects on other markets or introduce distortions to competition between financial institutions,” he said.

Trade lawyers say that US loans for Chrysler and General Motors, Swedish assistance for Saab and Volvo, and car industry aid packages in Canada, Germany, France, Australia, Argentina, South Korea, China and elsewhere could all lead to WTO complaints.

Mr Lamy’s warnings were echoed by Angel Gurria, Secretary-General of the Organisation for Economic Co-operation and Development (OECD), who said that governments should not be lured into protectionism in an attempt to boost economic activity.

In an article published on the OECD website last night, Mr Gurria said that the rules of finance and global business needed to be rewritten and that “governments must not be lured into riding to the rescue of every national firm or interest . . . We will only make the crisis worse if we succumb to the lure of protectionism and petty nationalism. To restore the trust that is fundamental to functioning markets, we need better regulation, better supervision, better corporate governance and better co-ordination. All of these, in turn, call for improved co-operation at a multilateral level.”

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