Saturday, November 17, 2012

Pascal Lamy on the "fallacy of protectionism"

I have often blogged about the growing signs of protectionism in recent times.While some are manifested in "buy local" measures others are in the form of increased "import licensing" measures. Though countries espouse less protectionism, the facts indicate that countries in times of crisis do tend to look inward to protect domestic industry, growth and interests.

Pascal Lamy in this post titled "The Fallacy of Protectionism" in YaleGlobal Online has highlighted the dangers of a protectionist world in the context of global realities of trade. Referring to the global supply chains and the active role WTO has played in monitoring international trade, protectionism though in existence, is not as pervasive as it could have been.
"The internationalisation of production that had so visibly bound economies together prior to the crisis was underpinned by the predictable trading environment provided by WTO rules. When the crisis broke, the WTO's combination of monitoring and surveillance and a firm framework of rules worked to deter knee-jerk protectionism.  Since January 2009, the WTO has issued regular reports on governments' use of trade restrictive measures. Together with the United Nations and the Organization for Economic Co-operation and Development, the WTO monitors how the Group of 20 leading economies comply with their pledges to refrain from trade and investment protectionism, documenting new policies to restrict or facilitate trade."
Will the reality of international supply chains, integrated markets and internationalization of production be the key to a less protectionist world? How much of global production is integrated? Pankaj Ghemawat tends to believe that we are less integrated than we think we actually are. Why are there clamours for "buy local" even from developed countries which are part of this integrated supply chain? Is there a difference between global corporations being part of integrated supply chains and countries representing vast majorities who are cut off from the realities of trade? Is there a disconnect between global supply chains and the vast majority of people who vote? Is democratic politics and the pressures of local, domestic interest different from value chain trade and internationalization of production? We need to critically look at this aspect if one has to find answers to some of the discomfiture with international trade and openness in many parts of the world. I am not suggesting that more protectionism is the answer. However, we need to understand what the reality actually is. It surely may be somewhere in between, as usual.


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Anonymous said...

The global economy is beset by unfair trade practices—under the label of “Free Trade”—causing an increasing number of developed nations to protect their few remaining unionized workers against competition from lower-paid, third-world labor forces that have fewer benefits and are not hampered by safety and environmental regulations, at least not to the same extent. Overpriced labor forces employers to look elsewhere where skills and productivity are equal or better and transportation costs to markets are feasible.

The fact is that if nations want free trade, no treaties are necessary. Present “free trade” treaties are protectionist documents outlining items to be excluded from free exchange; they are designed to protect manufacturers, farmers, labor unions, and pharmaceutical researchers, etc. Import inspections under the guise of sanitary safety standards are frequently employed to circumvent free access to agricultural markets that are the most highly subsidized and protected. Legal recourse exists but is useless when perishable products are delayed. Higher fines must be imposed when this practice is found to be abusive.

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