Rising protectionism

In a new article at VoxEU.org Simon J Evenett points out that in recent weeks official bodies such as the World Trade Organisation and the European Commission as well as leading private sector associations – the International Chamber of Commerce (ICC) and the so-called B20 group of business leaders – have made strong statements concerning rising protectionism in the run up to the G20 summit in Los Cabos, Mexico. On the basis of most extensive update to the Global Trade Alert (GTA) database, that was conducted in preparation for this, the eleventh GTA report, they were right to do so.

Evenett writes,

There has been a steady stream of protectionist measures introduced since the last G20 summit – at least 110 measures have been implemented, 89 of which were imposed by G20 members. This report demonstrates that the amount of protectionism in 2010 and 2011 was considerably higher than previously thought. An additional 226 protectionist measures were found in those two years, representing a 36% increase on the number of beggar-thy-neighbour policies implemented during 2010 and 2011.

Such protectionism translates into lost commercial opportunities, threatened jobs, and slower economic recovery. In very tangible terms, if the information available now had been known just six months ago – in November 2011 when our last report was published – then the number of times China’s commercial interests have been hurt by foreign protectionism in the three years following the November 2008 summit would have been increased by 105. Over the same time frame the US’ commercial interests were harmed 107 more times than previously thought. The understatement in previous reports of the frequency of harm done to many G20 countries’ commercial interests is of the order of at least 20%. Ultimately, what this means is that the world trading system did not settle down to low levels of protectionism after the spike in beggar-thy-neighbour policies in 2009.

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 60% 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 beggar-thy-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.

This finding does not imply that the WTO rules are useless, rather so long as they remain incomplete that circumvention is to be expected. If anything, the policy implication is that more far-reaching WTO rules are ultimately needed, even if there is little apparent appetite among governments for expanding the remit of multilateral trade rules at this time. It is probably safer to conclude that the WTO rules have altered the composition rather than the amount of protectionism in recent years.

Since official international initiatives amount to a weak bulwark against protectionism, any restraint is likely to have domestic sources. For sure, it would be desirable for G20 governments to start doing what they said they would do at their first summit in November 2008 – that is, refrain from protectionism – and having failed to do so to date, to unwind the protectionism that has been put in place. Moreover, peer pressure could and should be employed to rein those G20 countries that have engaged in extensive discrimination against trading partners.

Short of a major change of heart, the G20 is unlikely to deliver on these recommendations – and expectations should be moderated accordingly. The emphasis, then, must be on winning the argument for maintaining open borders in each major trading nation. Here business associations, consumer groups, and the media – supported by information provided by international organisations – should be at the fore of making the case against protectionism. The hard work in fighting protectionism is at the national level and not in writing reports for international summits. Information has its role, but it is not enough to limit the damage done to the relatively liberal world trading system created in the post-war era.

So even here in New Zealand we must be alert to any move to introduce more protectionist measures and fight them when they do arise.