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Trade policy

After the financial crisis

by Kathrin Berensmann, Clara Brandi

In depth

Experts agree that the protectionist measures taken during the global financial crisis have proved to be considerably less far-reaching than those taken during the Great Depression of the 1930s. Nevertheless, new trade restrictions have been established in the aftermath of the crisis, especially in member countries of the G20. Some of these measures hurt the least developed countries. By Kathrin Berensmann and Clara Brandi

Pascal Lamy, the WTO’s director-­general, has repeatedly warned against creeping protectionism. At the same time, however, he has pointed out that, so far, trade barriers affect less than one per cent of international trade in goods. This low overall percentage, however, hides the fact that the impact of new trade barriers can be quite strong in specific sectors. Recent analyses show that trade in some individual goods has nose-dived by at least five to nine per cent.

The impact of trade barriers in this period of recovery from the crisis is being assessed in quite different ways. Two major studies have come to diverging conclusions. A report by the WTO, OECD and UNCTAD (2010) noted that, while there are some protectionist measures, protectionism is nevertheless being contained. In contrast, experts from Global Trade Alert (GTA), an independent group of policy observers, are much more wary. A recent GTA study, which was published by the Centre for Economic Policy Research (CEPR 2010) and supported by the World Bank, shows that a total of 692 trade barriers were introduced since November 2008.

The new upswing in world trade has not reduced the list of protectionist sins. To the contrary, various countries are introducing new trade barriers despite the global economic recovery. Most measures are directed against China, followed by the EU and the USA. Goods from China are especially often affected by rising tariffs and antidumping measures. Relevant sectors include chemicals, steel and iron, but also textiles and clothing. China is indeed the only developing or emer­ging-market country among the ten nations most often affected by new pro­tectionist measures. In total, however, developing and newly industrialising countries are burdened by about two fifths of the export decline prompted by crisis protectionism (Evenett, 2010; Henn and McDonald, 2010).

The poorest are also hit. According to the GTA, 141 governmental measures have had a detrimental effect on the commercial interests of the least developed countries (LDCs) since November 2008. With the exception of Tuvalu, all LDCs were affected, particularly Bangladesh, Tanzania, Yemen, Senegal and Sudan. While no single country is accountable for the total impact, the G20 members are responsible for many of these measures.

The greatest sinners

According to GTA, the members of the G20 have on average introduced a new protectionist measure every second day, in spite of their public commitment to open markets. The main actors are the member states of the EU, including Germany. However, developing countries and newly emerging markets such as Russia, Argentina, India and Brazil are also among the biggest sinners. That shows that “beggar thy neighbour” policies are not exclusively a North-South phenomenon (Evenett, 2010, p. 37 f.). It also makes clear that the G20 is failing to keep to its pledge of no protectionism.

There are various reasons for different experts making different assessments. One is that newly-introduced protectio­nist measures were mostly unconventional and subtle, so they are not easily quantifiable. The GTA study mentions not only tariff and non-tariff trade barriers, but also other instruments which harm the commercial interests of foreign companies, such as government interventions to bail out corporations of national interest. Such discrimination is called “murky protectionism”. Industrialised nations, moreover, subsidise industries, thus thwarting fair competition.

WTO principles such as national treatment – according to which governments must treat foreign companies based in WTO member countries like they treat national companies – are meant to prevent such discriminatory protectionism. However, the crisis has shown that the WTO rules are weaker than they should be, so new questions arise for the multilateral trade system. They include whether the WTO principle of national treatment or the WTO Agreement on Subsidies and Countervailing Measures need to be reviewed. New WTO rules on murky protectionism would help to reduce the asymmetry between developing and wealthy nations. This asymmetry is caused by the fact that developing countries cannot afford substantial subsidies or other expensive forms of support and must consequently resort to tariff instruments which are subject to stricter WTO rules (Evenett, 2009).

Doha Round in a new light

Many of the new trade barriers are not contrary to the existing WTO rules. The rules leave considerable leeway for interventions in trade. For example, many countries can increase their tariffs considerably before reaching the upper limits defined in WTO agreements. The global crisis calls for a reconsideration of the WTO’s Doha Round of negotiations, which has been going on for ten years. By reducing tariff limits, eliminating export subsidies and specifying other trade rules, the leeway for trade distortions which are WTO-compliant would be substantially reduced.

The Doha Round can prevent the reversal of market liberalisation. That would serve the interests of developing countries. This is especially true of developing and newly industrialising nations, where economies heavily depend on exports.

Exports from developing countries have indeed recovered, but a renewed deterioration in the world economy (“double dip recession”) would once more reduce demand. In addition, there is still the risk of currency wars, though nobody would benefit from a global devaluation race designed to create trade advantages. In particular in crisis times, more must be done to monitor protectionism. Multilateral trade rules must be strengthened – both in the Doha Round and beyond.