Buy French - Rumblings of protectionism in the EU?

I have blogged about the issue of protectionism consistently whether by the developed world or enveloping countries. The trend is increasing across the globe due to a variety of factors and in various forms. This piece related to the history of the "protectionist" ethos in France.

Reuters recently reported that a French Minister had announced that consumers must encourage buying local French products. Simon Lester, in his inimitable way, has highlighted this at the IELP blog here.

Favouring domestic goods in comparison to imported goods is a clear violation of GATT non-discrimination provisions. However, whether this is a mere statement/intent/pronouncement  or is a clear enunciation of policy is unclear. If it is a statute/regulation/policy a WTO member could challenge France at the WTO. However, if it is only a case of political rhetoric or opinion, there is nothing much anyone can do.

Rumblings of protectionism in the EU?

A case for Protectionism? It was always there...

"Protectionism" today is a bad word. In the context of multilateral trade rules, it is forbidden and regressive. Countries publicly eschew protectionist measures, but in practice as is seen, follow them rather regularly. At times, it is argued that developing countries and emerging economies use protectionist tools more than the developed world. Actual study of policies may give a strikingly different picture. Is there a case for "protectionism"? Does history prove us different and surprising lessons?

David Todd in his "Protectionism as Internationalist Liberalism" explores this historical context from 1789-1914 where he argues that Germany, France and the United States have used "protectionist" policies as part of their official policy to counter the rise of U.K. He also puts forth the view that "protectionism" has been part of the larger liberal, internationalist, egalitarian left response to neo-liberalist philosophy since the 18th century and is not something invented in the 1930s.

"From the end of the nineteenth century, especially in Germany, protectionism has thus clearly nourished the xenophobic nationalism that ravaged Europe between 1914 and 1945. But the examples of Thiers, List and Carey show that protectionism was initially the result of intellectual exchanges among “dominated” nations, directed against the dominant power of the British Empire, rather than the expression of a thirst for nationalist domination. These examples also suggest that protectionism was often the economic aspect of an egalitarian liberalism of the left or the centre left, which put the citizen above the consumer. Contrary to the beliefs of many of their respective supporters, in our time as in the nineteenth century, the struggle between free trade and protectionism is not a conflict between good and evil. Tariff barriers do not mechanically lead to war any more than free trade guarantees peace, as is shown by the commercial treaty between France and Prussia in 1862, which did not prevent the outbreak of the Franco-Prussian War in 1870. Tariffs are no more and no less than taxes on imports, which – like all taxes – have both adverse and positive effects on wealth creation. As for their political significance and their economic consequences, these have varied considerably throughout history."

I am not a student of international economic history but this piece raises important questions - is there a good and bad in international trade theory at all or is it a matter of circumstance? Is reduced trade barriers and freer trade , ipso facto, good while "protectionist" measures bad? Do multilateral trade rules stereotype philosophical attitudes of free trade, protectionism and protection of domestic industry? Is there scope within the multilateral trade rules to be reasonably "protectionist"? Perhaps the "Free Traders" would have a far more convincing response to these queries. 

Protectionism - A wave or a whimper?

Is Protectionism on the rise again? I had blogged about the France Industries Minister's comments here. Argentina is facing a request for consultation against its import licensing requirements from EU about which I had blogged here. US and China are often locked in battles accusing each other of "protectionist" tendencies. News reports about India's ban on avian imports was a cause of concern for the US. Does the global recession lead to an increased sense of insecurity and hence a rise in measures that comprise of trade restricting measures leading to protectionist moves. Is it a temporary, cyclical or ever increasing phenomenon?

In a talk in Bangkok recently, Pascal Lamy, Director General of WTO warned against the rise in protectionism.

"Darker spots are, unfortunately, more numerous: a clear revival of protectionist rhetoric, statements in favour of import substitution policies, more or less transparent administrative measures, tax concessions, subsidies, domestic preferences in government procurement.

Protectionism is like cholesterol: the slow accumulation of trade restrictive measures since 2008 — now covering almost 3 per cent of world merchandise trade, and almost 4 per cent of G20 trade — can lead to the clogging of trade flows."

A recent joint study by OECD, WTO and UNCTAD for the G 20 on trade and investment restrictions reveals growing protectionism amongst countries. In a joint summary statement, the concern about different forms of restrictions was raised:

" The accumulation of trade restrictions is a matter of concern, which is aggravated by the relatively slow pace of rollback of existing measures.  This situation is clearly adding to the downside risks to the global economy.  Moreover, government support to selected sectors is distorting competition and restricting trade.  G-20 governments should resist any further deterioration in their collective trade policy stance and rely on open markets and the benefits of freer trade to help reboot growth in the world economy.  Increasing trade is critical to stimulating global recovery."

The Report itself was categorical in its concern for protectionist efforts. It stated:

"There is a revival of protectionist rhetoric in some countries …

The politics of trade in some countries seems to be turning inward-looking.  Of particular concern are statements by some G-20 Leaders in favour of import substitution policies as the pillar of economic growth in their countries.  This is generating regional and global trade tensions which have largely been absent since the coordinated policy responses to the global financial crisis were launched. 

Some G-20 governments are reportedly considering raising import barriers, or in some cases have already done so, to protect their domestic industries from what they may consider to be unfair competition.  In certain cases, the barriers seem to take the form of procedural or administrative actions to slow down the clearing of goods at borders rather than new laws or regulations.  This can render trade conditions even more difficult since lack of transparency about conditions of entry into a market increases uncertainty for traders and raises the risks and costs of doing business. 

There has also been a reported increase in restrictions placed on government procurement activities in some countries.  More open trade in government procurement allows governments to purchase goods and services based on who offers taxpayers the best deal, ultimately saving money.  The optimal action would be to convince trading partners to further open their public procurement markets rather than closing domestic markets. 

With tight government budgets, high unemployment, slower growth, and the prospects of further multilateral market opening seemingly slipping away, the threat of protectionist pressures looms even larger.

Implementation of new trade restrictions continues unabated …

Since mid-October 2011, 124 new trade restrictive measures have been recorded, affecting around 1.1% of G-20 merchandise imports, or 0.9% of world imports.    The main measures are trade remedy actions, tariff increases, import licences and customs controls.  There were fewer new export restrictions introduced over the past seven months than in previous periods.

The more recent wave of trade restrictions seems no longer to be aimed at combatting the temporary effects of the global crisis, but rather at trying to stimulate recovery through national industrial planning, which is an altogether longer-term affair.  In addition to trade restrictions, many of these plans envisage the granting of tax concessions and the use of government subsidies, as well as domestic preferences in government procurement and local content requirements.

Accumulation of trade restrictions has become a major concern …

The new measures restricting or potentially restricting trade that were implemented over the past seven months are adding to the trade restrictions put in place since the outbreak of the global crisis.  The accumulation of trade restrictions is now a matter of concern.  The trade coverage of the restrictive measures put in place since October 2008, excluding those that were terminated, is estimated to be almost 3% of world merchandise trade, and almost 4% of G-20 trade.

The accumulation of trade restrictions is aggravated by the relatively slow pace of removal of existing measures.  Out of a total of 802 measures that can be considered as restricting or potentially restricting trade implemented since October 2008, 18% have been eliminated.  At the time of the last monitoring report in October 2011, around 19% of the restrictive measures had been removed, which means that the rate of removing restrictive measures is actually slowing down.

Moreover, the accumulation of restrictions has to be considered in a broader perspective where the stock of trade restrictions and distortions that existed before the global crisis struck, such as in agriculture, is still in place." 

The Report analyses in detail export restrictions, TBT measures, SPS measures, initiation of anti-dumping and countervailing measures, Government support measures amongst G 20 countries. The Joint summary concluded that more effort at multilateralism is required to ward of protectionist tendencies.

"We appeal to G-20 governments to redouble their efforts to strengthen multilateral cooperation to find global solutions to the current economic difficulties and risks, and to seek to avoid situations that would create trade tensions between them.  The multilateral trading and investment system needs to continue acting as an insurance policy against protectionism.  Stronger global cooperation is needed to rebuild a robust architecture for trade and investment in the 21^st century.  The forthcoming G-20 Summit in Los Cabos should send a strong and clear signal about the need to keep markets open, resist protectionism, and preserve and strengthen the global trading and investment system so that it continues performing this vital function in the future.   A firm commitment to improve multilateral transparency and peer review should be pursued."

While what constitutes protectionism and what is an exercise of domestic policy space is debatable, the Report highlights the growing trend towards inward looking policies. Recently, the WTO Appellate Body ruled against the Dolphin Safe labelling measure of the United States as being violative of Article 2.1 of the TBT Agreement. Can the measure now be considered protectionist since it is less favourable to fish from Mexico? Would non-compliance of the WTO measure be an inward looking act? A letter written to the US President by some  US House of Representatives members in support of the labelling measure raises interesting questions of the limits of domestic policy and WTO obligations.

Protectionism is used generally in terms of measures initiated by countries that restrict trade. Some of them may be within the confines of the exceptions provided by the WTO Agreements itself. Some of the measures may be more trade restrictive than necessary while some of them may be justified as per the WTO rules. While determination of which measures fall within the ambit of the rules is a complex, legal exercise requiring a detailed appraisal of law and fact, the general tenor of the Report detailing out such measures signifying a "protectionist" move if not wave should not be missed.

France, Globalisation and Protectionism - Where will the dice roll?

(Courtesy: Chris Riddell, The Observer, 2009)
With a new government in place in France, I read with great interest this interview of the new Industry Minister  of France Arnaud Monteburg who had strong reactions against globalisation and seemed pro-protectionist. Some excerpts:

"We need above all to protect ourselves. [Globalisation] is an extremism because, without loyalty or law, without any limit, it has placed our territories, our industrial system, enterprises, wage-earners — in direct competition with countries which have wages 30 times lower than ours.

Social protection there is virtually absent, whilst wage earners [in France] after two centuries of social struggle have fair working conditions. And this competition has destroyed our industrial system. Furthermore, it has not greatly progressed emerging countries either. Some countries have escaped [poverty] and others have not. They have become poor."

Speaking about the need for unilateral Protectionism, he continued:

" To start with, this is a European strategy. And Francois Hollande, besides, in his campaign expressed himself very strongly on the necessity that Europe, if she is to be ‘Open’ should not be ‘offered’ [like a sacrifice]. Today we are unprotected against globalisation. [He uses the metaphor of a 'globalisation sieve'].

Even the European Commission is now recommending greater protection than any that existed before. Let us be clear. It is about re-orienting the European Union which is currently as ineffective as a sieve against globalisation. And we will need to ask for reciprocity: that which the Chinese, the Americans, the Brazilians…

The Brazilians have just decided come up with an incredible strategy: they have decided to tax every iPhone made by Apple in China that comes across Brazilian borders. The consequence is that Apple has decided to build a factory in Brazil. It is obvious that the European Union alone in our European continent has the power to do that. Therefore …”

Are we going to see a new wave of "protectionist" measures from France in the light of these observations? Are the measures proposed consistent with France's obligations under the WTO? Though there are no specific measures to analyse here, is the general trend of "reciprocity" in free trade, ie. engaging in protectionism against countries which do not follow free trade policies themselves, acceptable under the multilateral trading system? Can France selectively impose barriers to trade against those countries that it perceives are being protectionist? Does this not violate the principle of "most favoured nation" treatment under the GATT? France is also not a very active player in the dispute settlement mechanism of the WTO as compared to the US or China. Does this indicate the general reluctance to engage with an international dispute resolution mechanism that may have an impact on national sovereignty?

This detailed paper by Sophie Meunier titled "France, Globalisation and Global Protectionism" in 1999 (in the context of the Seattle opposition to the WTO Ministerial) gave a detailed analysis of France's attitude towards globalisation as well as the reasons for it. Is the opposition rooted in France's opposition to Anglo-Saxon and American dominance? It also brought out the dichotomy of France's participation in the globalised world economy as well as it's opposition to it.

"If politicians want to bolster their claims to a different, more democratic, more just world economy, they should work with their European partners on providing a sensible alternative. The main reason why they are not really doing this is the paradox that I stated at the beginning of this article: France is increasingly resisting globalization, while at the same globalization can be identified as the main driving force behind the recent success and modernization of the French economy. As long as politicians have not  found a way to resolve this fundamental tension, French opposition to globalization  will remain purely rhetoric –with clear domestic consequences, but little chances of affecting the rest of the world. "

This general resentment against globalisation in France has been explained in this piece in the YaleGlobal Online titled "Has European Protectionism Finally Triumphed Over Free Trade? French style of reciprocal protectionism wins new fans in Europe" by Justin Stares who explained the dominance of France's thinking in the European Union.

"The French believe they are under no obligation to trade freely with countries that are themselves not believers in free trade. "What we want is reciprocity," says Gael Veyssiere, spokesman for the French permanent representation to the European Union. "We believe in fair free trade. Why should we be the only ones to be completely open when others are not?" he tellsPublicServiceEurope.com. French ministers take this protectionist reflex to Brussels, where they find support from similar-minded nations such as Italy. They attempt to block takeovers on the grounds that certain French companies are strategic assets; they talk up "Buy European" campaigns such as the one now promoted by French President Nicolas Sarkozy, who is seeking re-election. "Europe has for too long been the idiot of the global village," former French foreign affairs minister Hubert Vedrine told Belgian newspaper Le Soir. "This has to stop," he said earlier this month. "Open your eyes: lots of countries that were yesterday aid recipients have today become dragons and huge competitors. We have to re-establish more balance between countries in the west and the emerging countries. Tensions will be inevitable. So what? We mustn't be afraid."

Is France's opposition more rhetoric than action? In the globalised world and the existence of multilateral rules, is a stand of getting back to protectionist measures just a mirage or a real threat? Will  France take concrete measures that can be perceived  as "protectionist" and how will its trading partners react? While Argentina is being accused of following a protectionist path recently with its import licensing procedures, will it be France next on the line? Will we see a WTO dispute against France soon?