Dozens of new, sometimes hidden, trade barriers threaten anti-protectionist sentiment as well as efforts to end the financial crisis.
By Hu Shuli, Caijing 1 April 2009
Expectations ran high as the April 2 meeting for the G-20 in London approached. One reason was that anti-protectionism was likely to be a major theme at this summit of world leaders, gathered against the backdrop of a sliding global economy.
Meanwhile, any optimism about the summit’s ability to bolster global free trade had to be tempered by caution over various, yet sometimes hidden, forms of protectionism.
Free trade is the main driving force for world economic growth and development. Any new sort of trade protectionism now would make the unhealthy global economy sicker. This only makes sense. All major economies benefit from free trade, including the United States, which has inserted a “Buy American” message into a government economic stimulus package, and China, which has undergone tremendous change in the past 30 years, as well as India and Brazil, two major emerging economies, and even France, which is known for aggressive farm subsidies.
No country now would openly support protectionism. Trade protectionism has become an easy target for condemnation around the world, while the principle of free trade is widely accepted.
But many countries have chosen to speak out against protectionism on the one hand while practicing it on the other. In the run-up to the summit, the World Bank issued a report showing 17 countries had implemented 47 measures to restrict trade at the expense of other countries since the G-20 summit in November 2008, whose participants vowed not to adopt protectionist policies.
It is noteworthy that tariff increases comprised only one-third of the recent trade protectionist measures, and all of these offenders were developing countries. Meanwhile, about two-thirds have practiced “hidden protectionism,” such as non-automatic licensing requirements on imports, limits on ports of entry, and tightened import standards – steps that are less obvious than trade barriers.
However, the largest, non-tariff barrier is still the export subsidy. The World Bank report said of the 47 protectionist measures, 12 undertaken by developed countries and one-third of the 35 in developing lands were export subsidies.
Protectionism in times of crisis is not new, and all parties including the initiators typically suffer losses. The Smoot-Hawley Tariff Act passed during the 1930s Great Depression by the U.S. Congress imposed high tariffs on more than 20,000 imported items, triggering a global trade war and nearly grinding international trade to a halt. Some economic historians think the decade-long Depression was a direct result of a trade war started by the United States.
Protectionism in the latest global financial crisis is the most serious since the Depression, although it may no longer be as glaring as in the past. These barriers are often hidden and more subtle. For example, the World Trade Organization allows a number of exceptions to free trade rules designed to preserve fair and normal trade order. But these exceptions can be abused as excuses for protectionism. For example, anti-dumping and technical safety standards are often used to disguise protectionism.
In the name of boosting bank capital, financial protectionism is quietly spreading through international loan pull-backs. Former British Prime Minister Tony Blair, in a recent interview with Caijing, warned that while “front-door” protectionism may no longer be possible, we should watch out for “back-door” protectionism, such as the use of environmental protection rules to keep out imports.
Although knowing that protectionism is harmful, many governments find it hard to resist protectionist demands from interest groups. Some are motivated by a desire for election support or short-term economic stability. These kinds of sub-conscious struggles for survival can get ahead of rational thinking.
In reality, the global division of labour and shifts in industry result from competition. Under the market mechanism, the state and other social institutions are obligated – and able – to provide cushions for social and economic transformation. But the cushion should not be achieved through trade protectionism.
Trade barriers are easier said than done. Protectionism appears to bring instant benefits. But efforts to prevent protectionism require mutual trust and good will – two elements that the world right now needs more than ever to get through difficult times. Without mutual trust, we cannot prevent countries from sliding into trade protectionism, nor find the cohesion and energy needed to overcome the crisis in global financing and economies.
Building mutual trust requires that the United States, European Union, China and other trading nations take the lead in making clear, feasible and verifiable pledges against protectionism. And the best response to calls for protectionism would be to move ahead with the Doha Round of trade talks, which have been stalled for seven years.
We should also take a close look at ourselves. China is a beneficiary of economic globalization and free trade. Undeniably, it has tried all sorts of policies and activities tinged with protectionism in the past and present. The World Bank report lists eight, recent protectionist measures taken by China. And on March 26, China again increased tax rebates for certain export products.
Although “protection” and “protectionism” are not the same, China would be well advised to change course if it steps out of bounds. Acting as a responsible major country and keeping in check domestic demand for protectionism would be an extension of China’s effort to maintain and deepen its basic policy of opening to world trade. The global crisis should be a catalyst for further opening.
As China’s minister of commerce has said: “If we shut the door as soon as we encounter dangers and challenges, we will be marginalized again... (and) miss opportunities for future economic development and technological innovation.”
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‘No’ to Protectionism Easier Said than Done
Dozens of new, sometimes hidden, trade barriers threaten anti-protectionist sentiment as well as efforts to end the financial crisis.
By Hu Shuli, Caijing
1 April 2009
Expectations ran high as the April 2 meeting for the G-20 in London approached. One reason was that anti-protectionism was likely to be a major theme at this summit of world leaders, gathered against the backdrop of a sliding global economy.
Meanwhile, any optimism about the summit’s ability to bolster global free trade had to be tempered by caution over various, yet sometimes hidden, forms of protectionism.
Free trade is the main driving force for world economic growth and development. Any new sort of trade protectionism now would make the unhealthy global economy sicker. This only makes sense. All major economies benefit from free trade, including the United States, which has inserted a “Buy American” message into a government economic stimulus package, and China, which has undergone tremendous change in the past 30 years, as well as India and Brazil, two major emerging economies, and even France, which is known for aggressive farm subsidies.
No country now would openly support protectionism. Trade protectionism has become an easy target for condemnation around the world, while the principle of free trade is widely accepted.
But many countries have chosen to speak out against protectionism on the one hand while practicing it on the other. In the run-up to the summit, the World Bank issued a report showing 17 countries had implemented 47 measures to restrict trade at the expense of other countries since the G-20 summit in November 2008, whose participants vowed not to adopt protectionist policies.
It is noteworthy that tariff increases comprised only one-third of the recent trade protectionist measures, and all of these offenders were developing countries. Meanwhile, about two-thirds have practiced “hidden protectionism,” such as non-automatic licensing requirements on imports, limits on ports of entry, and tightened import standards – steps that are less obvious than trade barriers.
However, the largest, non-tariff barrier is still the export subsidy. The World Bank report said of the 47 protectionist measures, 12 undertaken by developed countries and one-third of the 35 in developing lands were export subsidies.
Protectionism in times of crisis is not new, and all parties including the initiators typically suffer losses. The Smoot-Hawley Tariff Act passed during the 1930s Great Depression by the U.S. Congress imposed high tariffs on more than 20,000 imported items, triggering a global trade war and nearly grinding international trade to a halt. Some economic historians think the decade-long Depression was a direct result of a trade war started by the United States.
Protectionism in the latest global financial crisis is the most serious since the Depression, although it may no longer be as glaring as in the past. These barriers are often hidden and more subtle. For example, the World Trade Organization allows a number of exceptions to free trade rules designed to preserve fair and normal trade order. But these exceptions can be abused as excuses for protectionism. For example, anti-dumping and technical safety standards are often used to disguise protectionism.
In the name of boosting bank capital, financial protectionism is quietly spreading through international loan pull-backs. Former British Prime Minister Tony Blair, in a recent interview with Caijing, warned that while “front-door” protectionism may no longer be possible, we should watch out for “back-door” protectionism, such as the use of environmental protection rules to keep out imports.
Although knowing that protectionism is harmful, many governments find it hard to resist protectionist demands from interest groups. Some are motivated by a desire for election support or short-term economic stability. These kinds of sub-conscious struggles for survival can get ahead of rational thinking.
In reality, the global division of labour and shifts in industry result from competition. Under the market mechanism, the state and other social institutions are obligated – and able – to provide cushions for social and economic transformation. But the cushion should not be achieved through trade protectionism.
Trade barriers are easier said than done. Protectionism appears to bring instant benefits. But efforts to prevent protectionism require mutual trust and good will – two elements that the world right now needs more than ever to get through difficult times. Without mutual trust, we cannot prevent countries from sliding into trade protectionism, nor find the cohesion and energy needed to overcome the crisis in global financing and economies.
Building mutual trust requires that the United States, European Union, China and other trading nations take the lead in making clear, feasible and verifiable pledges against protectionism. And the best response to calls for protectionism would be to move ahead with the Doha Round of trade talks, which have been stalled for seven years.
We should also take a close look at ourselves. China is a beneficiary of economic globalization and free trade. Undeniably, it has tried all sorts of policies and activities tinged with protectionism in the past and present. The World Bank report lists eight, recent protectionist measures taken by China. And on March 26, China again increased tax rebates for certain export products.
Although “protection” and “protectionism” are not the same, China would be well advised to change course if it steps out of bounds. Acting as a responsible major country and keeping in check domestic demand for protectionism would be an extension of China’s effort to maintain and deepen its basic policy of opening to world trade. The global crisis should be a catalyst for further opening.
As China’s minister of commerce has said: “If we shut the door as soon as we encounter dangers and challenges, we will be marginalized again... (and) miss opportunities for future economic development and technological innovation.”
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