Protectionism: Only strategies are changing

By Dr B K Mukhopadhyay

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

Everyone wants a buoyant situation, but the reality is something opposite! After averaging 3.9 percent growth over the decade to 2013, global growth would be 2.9 percent this year then edge up to 3.3 percent in 2017 and 3.6 percent in 2018.

The west’s leading economic think tank has warned: A new wave of protectionism and trade tensions risks denting global growth, stoking inflation and harming living standards!  The Paris-based Organisation for Economic Co-operation and Development (OECD)  is optimistic  - though  spending measures and tax cuts under the new US administration would boost growth there and in other countries, yet global trade growth was already “exceptiolly weak” and jobs would suffer if politicians rolled back the clock on trade liberalisation.

The think tank warned of an uncertain outlook for the UK and its trading partners as Brexit negotiations began. It nudged up its forecasts for UK growth next year but still predicted the weakest performance since the recession and a further slowdown in 2018.

Even in the recent past the then US President alleged that Chi illegally subsidizes exports of cars and car parts, thus forcing US manufacturers to shift production overseas. Chi had been 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 going has not only affected  developed economies but also major emerging markets to a significant extent. Is there any doubt that rising protectionism has been damaging and blocking the smooth trade path?

Even he World Trade Organization (WTO) sounded alarm over the rise in economic restrictions imposed by the Group of Twenty (G-20) despite the 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, in particular 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. Does it not contradict the promises made by the world’s leading and industrialized economies to resist protectionism and its negative fallout?

The WTO have 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.

WTO reiterated the importance of removing trade barriers, noting the link between the rise in protectionist actions and the slowdown in world economic activity.

WTO is convincingly now pushing anew for free trade - 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.

The historical trends are not difficult to locate. 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 that the rising protectionist trend by its members! Especially, Chi, which controlled around 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.

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.

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, obvious enough!

The fact thus remains - the negative effects of protectionism are also widely gaining ground.

Whatever is: 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, a number of developing economies like India, Bangladesh, Vietm, South Korea, among others, are performing better. India’s recent performance deserves appreciation [of course not self-containment]. Indian exports even in the rent past grew satisfactorily. The country changed its export destitions, steadily. Consequently, India’s trade basket changed.

Actually a number of steps are being taken by these economies 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, allowing corporate to pay for import of capital goods, machinery and equipment by issuing equity shares to their suppliers.

Needless to remind 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 at least.  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 – time stays we go out!!

(The Writer,  a noted Magement Economist, an intertiol Commentator on Business and Economic Affairs and Principal, Eminent College of Magement and Technology, can be reached atm.bibhas@gmail.com)