Wednesday, July 25, 2012

Protectionism - Any end in sight?

Protectionism has been a recurring theme on this blog. In recent times, calls for reducing protectionism have become louder. We saw that at the 8th WTO Ministerial, at the G-20 Meeting in Mexico, BRICS Conference in Delhi recently. While declarations against protectionism have been easy to come by, actual non-protectionist measures on the ground seem to be lacking. Countries declare their resolve against protectionism and renewed faith in a fair, transparent, rule based multilateral trading system but we continue to see disputes centred around "protectionist" and trade restrictive measures. Further, what complicates the matter is what constitutes "protectionism" and the lack of transparency in many measures of countries in terms of the form and intent of their national level programs. The global economic downturn, it is argued, constitutes one of the main causes of protectionist tendencies.

Deputy Director General of the WTO Valentine Rugwabiza recently reiterated the dangers of protectionism here:
"National economic concerns inevitably gain visibility during times of recession and economic uncertainty, and the political will to open markets to foreign goods and services wanes with the escalation of fears regarding job losses and the livelihood of domestic industries.  In such times, the temptation to resort to protectionist measures becomes stronger....

Consider that 3% of world merchandise trade has been lost to trade-restricting measures introduced since 2008.  This is equivalent to the trade of the entire African continent.  It means that despite their repeated pledges to hold back from protectionism, some G-20 nations have continued to introduce new trade-restricting measures and have been slow to remove measures introduced earlier, even though past experience has shown that protectionist measures only make us all worse off by deepening the economic downturn."

Action speaks louder than words? A reading of various proceedings and declarations does give the impression that countries are resolved to fight trade restrictive measures. But are domestic compulsions so high that one doesn't see honest compliance? I had blogged about the gap between words and deeds here.

Another interesting point raised by Valentine Rugwabiza was of "green protectionism". She said:
"In recent years, we have seen a wide range of measures adopted under the green economy banner by both developing and developed countries.  These measures may in some instances impact international trade.  Through its system of rules and transparency mechanisms, the multilateral trading system of the WTO is a uniquely powerful instrument to help minimize the risks of protectionism and trade tensions.
WTO rules seek to achieve a crucial balance:  on the one hand, they support the right of members to take measures to advance legitimate goals such as protection of the environment;  on the other hand, they ensure that such measures are not applied arbitrarily and are not disguised protectionism."
Was this an indirect reference to the EU ETS on aviation as well as the various green subsidies implemented across the world? 

Global Trade Alert in its latest annual report reiterates the general concern on increased protectionism. It has a country comparison of protectionist analysis of measures since 2008 about which Business Beyond the Reef brought my attention to here. Asserting that G-20 is responsible for the bulk of protectionist measures it states:
"What is more, the evidence presented in this report casts doubts on the strength of international restraints on the resort to protectionism by governments, in particular by G20 governments. There are two pieces of compelling evidence here. First, the share of the worldwide totals of protectionism implemented by the G20 countries has risen year-in and year-out. In 2009 sixty per cent of protectionism was implemented by G20 governments—that percentage has risen in the year to date in 2012 to 79%. Findings such as these cast the repeated 

G20 commitments to eschew protectionism in a particularly bad light. Some observers of the G20 have noted that these commitments have been demoted in the respective summit declarations and the GTA’s evidence reveals just how little priority the G20 countries have actually given to maintaining an open world trading system. 
Second, while there has been a sustained increase in the use of trade defence measures since the last G20 summit, resort to the traditional forms of protectionism that are relatively-speaking better regulated by the WTO account never exceeded 42% of measures implemented in any recent year. During the crisis era, then, governments have circumvented tougher WTO rules and used beggarthy-neighbour policies subject to less demanding or no binding multilateral trade rules. Much of that discrimination is pretty non-transparent—that is, it is murky protectionism."
Ways to get over this impasse have been suggested by various proponents to include the completion of a multilateral Trade Facilitation Agreement that helps developing and less developed countries' businesses to take part in a global economy by reducing procedural hindrances and integrating into the world trading system easier. Whether this would reduce protectionism is debatable but the benefits of a Trade Facilitation Agreement are nevertheless undoubtedly welcome.

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