Is global protectionism really on the wane?

By Dr B K Mukhopadhyay

Is it not the fact that as the global economy continues to face tough times and a number of governments are increasingly playing politics with trade and giving in to protectionism?

Most recently, the US President alleged that Chi illegally subsidizes exports of cars and car parts, thus forcing US manufacturers to shift production overseas. Chi is already facing several cases at the World Trade Organization (WTO), including one brought jointly by the US, the EU and Japan over its restrictions on rare earth exports. On the other hand, Chi also sees itself as a victim of protectionism. In an effort to alleviate the pressure, it has begun talks with Japan and South Korea on a free-trade pact.

The current global economic stagtion has not only affected most developed economies but also major emerging markets to a significant extent. It is the rising protectionism that has been damaging and blocking the smooth trade path.

In the recent past the World Trade Organization (WTO) sounded the alarm over the rise in economic restrictions imposed by the Group of Twenty (G-20) despite the recent adoption of the Bali package of trade facilitation measures. Incidentally it may mentioned here that G-20 [Its members account for 85 percent of the world economy, 76 percent of global trade, and two-thirds of the world’s population] is the forum for intertiol economic cooperation and decision-making, with members from 19 countries plus the European Union]. Members are Argenti, Australia, Brazil, Cada, Chi, France, Germany, Indonesia, India, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United Kingdom, United States, and the European Union. turally, strong leadership by the G-20 economies is crucial for the world, especially to move forward on the positive momentum generated by the adoption of the Bali package.

Though the reason behind the protectionist measures taken was a response to rising prices for agricultural products and export quotas on metals and mineral products with a view to securing domestic supply and addressing resource depletion, yet the protectionist measures taken by the G20 countries were, in turn, obvious enough, in contradiction with the G20 standstill pledge. It contradicts the promises made by the world’s leading and industrialized economies to resist protectionism and its negative fallout.

As of now though the merchandise trade is expected to grow in 2015, yet one has to bear in mind that the World Trade Organization has strong reasons / responsibilities to caution its member countries against using protectionist measures such as limiting exports of food, agricultural commodities and raw materials and installing new barriers in the wake of the global fincial crisis.

The WTO reiterated the importance of removing trade barriers, noting the link between the rise in protectionist actions and the slowdown in world economic activity. The WTO is convincingly now pushing anew for free trade and initiatives were mainly new trade remedy actions, including anti-dumping investigations, tariff increases, and more stringent customs procedures. Additiolly, fewer liberalizing or facilitating actions, such as tariff reductions and termition of trade remedy actions, had taken place from mid-May to mid-November 2013 than in the past.

In one of its recent reports that assessed the protectionist behavior of more than 180 tions - between October 2010 and April 2011 - the WTO pointed out the rising protectionist trend by its members.

Incidentally, it may be mentioned that protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports and prevent foreign take-over of domestic markets and companies.

The historical trends are not difficult to locate.

Especially, Chi, which controlled 97 percent of world supply on this score, imposed export limits on rare earth minerals [key ingredients in high-tech goods, from fiber optics to mobile phones], citing the environmental concerns and resource depletion. In the overall global context the sectors most heavily affected in terms of trade coverage of restrictive measures were machinery and mechanical appliances (refrigerators, freezers, and heat pumps), motor vehicles, meat and edible meat offal, electrical machinery, iron and steel, aircraft, ships and boats, plastic and articles thereof, and articles of iron and steel.

Besides limiting exports, trading tions have increasingly resorted to unconventiol import barriers [viz. lengthy customs procedures and food and health requirements]. WTO rules clearly state that the export restrictions are allowed if they alleviate food shortages or environmental risks, although these restrictions can hurt net-food-importing countries and even cause serious food shortages. The use of protectionist measures to address these problems is hazardous, obviously enough!

So it is not a fact that the member tions are fuelling the flame. In fact the negative effects of protectionism are also widely gaining ground. Be that as it may, the imposition of trade remedy measures covers around 0.5 percent of total world imports and around 0.6 percent of total G20 imports. If current trends are of any indication it is clear that high unemployment in developed economies and sharp fiscal belt-tightening in Europe is likely to fuel protectionist pressures. Again, besides the persistence of the effect of the fincial crisis and global recession, the sovereign debt problems, rising prices for food and other primary commodities, and unrest in major oil exporting countries generate uncertainties for the near future.

But before we conclude it must be mentioned that even under the ongoing facts and circumstances, India’s recent performance deserves appreciation [of course not self-containment].Though following the global fincial crisis, global trade picked up in fiscal 2010, yet Indian exports even in the rent past grew faster than global exports. The country changed its export destitions, slowly withdrawing from the still-sluggish US, and instead focusing on Asian destitions, including Singapore and the United Arab Emirates (UAE). Consequently, India’s trade basket changed, too, with a greater focus on crude/petroleum exports and less on gems and jewellery, a traditiol Indian stronghold. Whether this was deliberate or not is debatable, but for now it seems to have helped keep Indian exports afloat.

Actually a number of steps are being taken by the Government to bolster the foreign trade sector. For example: to provide certain operatiol flexibility in issue of shares: import payment by corporates can now be done via shares. Foreign direct investment norms had thus been liberalized by the Reserve Bank of India (RBI), allowing corporate to pay for import of capital goods, machinery and equipment by issuing equity shares to their suppliers.

It is needless to be reminded that the multilateral trading system remains the best defense against protectionism and the strongest force for economic growth, sustaible recovery and development.

The upshot: there is no reason to presume that the protectionist practices are going to be over in the short run ay least and as such it is better to remember that ‘to break the rules one must know the rules’!! Biggies or minnows should try to ensure transparency and mutual cooperation aiming at bolstering the global trade and taking guard against possible revisit of global recession!! Tomorrow will be another day, let us make it a sunny one!

Let us keep our fingers crossed!

(The Writer, a noted Magement Economist and an Intertiol Commentator on business and economic affairs, Director, Netaji Subhas Institute of Business Magement, Jharkhand, can be located at m.bibhas@gmail.com)