Thursday, November 1, 2012

Protectionism - is it inevitable?

The Knowledge@Wharton website had an engaging piece about Argentina's rising protectionism. Argentina's protectionism has been on my blog here, here and here. Titled "The Risks and Rewards of Argentina's Growing Protectionism" the piece highlights the trend, both int he developed and developing world, towards inward looking policies. Is multilateralism and reduction of trade barriers under serious threat? Is the dispute settlement mechanism going to be over burdened with cases challenging protectionist measures across the world. 

Detailing the steps Argentina has taken to turn "inward" over the last few months the pice notes:
"In Argentina, this reality is reflected in a long list of measures imposed over the past year, notes Ernesto O’Connor, a professor of economics at Argentine Catholic University (ACA). These include quotas; non-automatic import licensing, which control imports by linking them to compliance with specific criteria; applications for compensation for tariffs paid by importers who also export other goods with a value that at least equals the value of their imports, and increases in the common external tariffs imposed on 100 industrial products covered by the rules of Mercosur, the economic and political agreement that includes full members Argentina, Brazil, Paraguay, Uruguay and, as of July 31, Venezuela. Beyond this, there are some restrictions on exports of meat, dairy products, wheat and corn that have been in force for five years, aimed at increasing their supply in the domestic market. 
Beginning this year, the Argentine government has also imposed what some call a “foreign exchange trap”, a restriction that makes it impossible for Argentines to buy foreign currency. This policy is also a mechanism for closing the Argentine economy, experts say, because, as a result, it has become more and more expensive for Argentines to travel to foreign countries and for Argentine students to save money in dollars, a practice that has long been common in the country. During the final week of August, the government also imposed on its citizens a 15% tax on their use of credit cards in foreign countries, which makes consumption overseas more expensive for Argentines and encourages them to spend in their own country."

Is this going to be a long term trend across countries - be it Brazil, India, Argentina, the EU or the U.S.? What are the implications of this strategy for multilateral trade? Will it result in further hardening of stands at the negotiating table and heighten tensions at the dispute settlement mechanism? Would it lead to more FTAs and bilateral agreements based on mutual convenience and power equations? Can the WTO intervene at all in this situation? While there have been growing signs of countries taking protectionist steps, are they short term measures which would blow away with the global economic crisis or is it part of a larger national strategy to look at domestic industries and shun international markets. Is it economically feasible or tuned to the international reality of global supply chains and comparative advantage?

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