Five More Years of the G20 Standstill on Protectionism?

Simon J Evenett 03 September 2013

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“We are deeply concerned about rising instances of protectionism around the world”. So declared G20 Leaders at the end of their last summit in Los Cabos, Mexico.

Well, did performance improve?

Moreover, we are approaching the 5th anniversary of the G20’s standstill on protectionism, how effective has it been? Should alternatives be considered?

Reading the 14th report of the Global Trade Alert, it seems clear that the current G20 approach is not working:

  • G20 members resorted to protectionism more frequently in recent years than at the beginning of the crisis;
  • As of the end of August 2013, the G20 members have implemented a total of 1527 beggar-thy-neighbour measures since they adopted their standstill on protectionism in November 2008.
  • Furthermore, G20 resistance to protectionism and promoting its rollback is worse than the mid-sized trading nations that did not take this standstill pledge.

The flaws in the G20’s ‘softly softly’ approach are glaringly apparent. The full Global Trade Alert Report is published today in advance of the G20 summit in St Petersburg, Russia.

Assessed properly, G20 resort to protectionism accelerated in 2012

That so many beggar-thy-neighbour acts take time to document biases the data reported on G20 protectionism, skewing assessments in favour of a more benign interpretation of the G20’s record. Before considering the data, it is worth recalling that tariff changes and investigations against dumped imports, subsidised imports, and import surges garner a lot more publicity than many other state measures that tilt the playing field.

Figure 1 shows how reporting lags alter the interpretation of the G20’s record on protectionism. The left hand panel reports, as of 19 August 2013, how many times the G20 countries undertook beggar-thy-neighbour actions since 2009, the first complete calendar year after the November 2008 standstill commitment was made. On 19 August 2013 the Global Trade Alert database included reports on a total of 345 instances of protectionism imposed by G20 members during 2009, a calendar year that was concluded almost 15 quarters ago. For the calendar year 2012, which ended nearly three quarters ago, the comparable total is already 335 (see Evenett 2012a). Still, casual inspection of the left hand panel of Figure 1 might give the impression that the resort to protectionism by the G20 has been steady since 2009, which some might ‘spin’ to the media and the public as protectionism being ‘under control’.

Better apple-for-apple comparisons of the annual resort to protectionism by the G20 (see Evenett 2012b) can be obtained by asking, at the same point in time in the reporting cycle, how many measures in a given calendar year had been found, documented, and published by the Global Trade Alert team? Given that the statistics for this report were assembled on 19 August 2013, following a considerable update of the underlying database over the summer, this date is perhaps as good as any. In fact, a date in the third quarter of the year allows for at least two full quarters of investigation and reporting since the completion of a given calendar year.

The right-hand panel of Figure 1 shows the total number of protectionist measures implemented by the G20 countries in a calendar year that had been reported by 19 August of the following year. By 19 August 2010, then, 273 protectionist measures imposed by the G20 countries in 2009 had been documented. By 19 August 2013, the comparable total for G20 measures imposed in 2012 was 335. Indeed, comparison of these annual totals suggests that the resort to protectionism in 2011 was 6% higher than in 2009 and, worse still, resort to protectionism in 2012 was 23% higher than in 2009. A less sanguine picture of G20 restraint emerges once reporting lags are taken into account. Whatever bite the standstill ever had seems to have diminished over time. But did the standstill have any bite in the first place?

The G20’s resort to protectionism compared to mid-sized trading nations

G20 countries pledged not to introduce new forms of protectionism while other trading nations did not – or at least did not do so in the same high profile manner. If the G20 standstill bit surely it would show up in the aggregate statistics on the resort to and rolling back of crisis-era protectionism? Moreover, surely the G20’s performance on those metrics should better those of nations that did not made this standstill pledge?
To explore this matter objectively, the G20 nations’ performance was compared with the 10 next largest trading nations (as measured by the sum of their total value of annual imports and exports.) Using data on the G20 and what is referred to here as the ‘Next 10’ mid-sized trading nations, the following statistics on each group’s resort to protectionism and propensity to rollback distortions were calculated:

  • The share of all commerce-affecting measures implemented since November 2008 that harm foreign commercial interests (a measure of the incidence of protectionism since the standstill pledge came into effect);
  • The share of all commerce-affecting measures implemented since the last G20 Summit in Los Cabos, Mexico, that harm foreign commercial interests (a measure of the incidence of protectionism since the Los Cabos summit);
  • The share of protectionist measures imposed since November 2008 that remain to be unwound (an indicator of degree to which commitments to rollback protectionism have not been adhered to);
  • The share of tariff lines that are affected by protectionist measures which have been implemented since November 2008 (another indicator of the scale of protectionism);
  • The share of tariff lines that are still affected by protectionist measures that were implemented since November 2008 and have not yet been unwound (another indicator of failure to rollback protectionism);
  • The share of protectionist measures imposed since November 2008 that are not tariff increases or measures against dumped imports, subsidised imports, or import surges (an indicator of the extent to which governments have resorted to ‘murkier’ beggar-thy-neighbour policies that are not so tightly governed by WTO rules as tariffs etc.).

Figure 1. Failure to correct for reporting lags hides the 2012 jump in Protectionism imposed by the G20

In Figure 2 the performance of the trade-weighted average G20 nation is compared to the average Next 10 nation on these six metrics. What is striking is that, on all but one metric, the performance of the G20 members is worse than the Next 10. The mix between liberalising and protectionist measures is skewed more towards beggar-thy-neighbour measures for the G20 nations; the protectionism imposed by G20 nations affects more product categories; and the G20 nations have unwound less crisis-era protectionism than the Next 10.

Yet, on a trade-weighted basis, the average G20 member resorted to murky protectionism half the time, while the average Next 10 nation resorted to murky protectionism nearly two-thirds of the time they chose to tilt the playing field towards domestic commercial interests. While murky protectionism is of interest – it being prevalent since the onset of the Great Recession – strictly speaking the G20 standstill does not distinguish between protectionism of different degrees of transparency.

When faced with the same systemic economic crisis the governments that pledged at G20 summits not to erect new trade barriers and the like in fact raised them more often than those that made no such pledge. These findings speak badly of the G20 standstill on protectionism.

Figure 2. Compared to the Next 10 largest trading nations, the G20 nations performed worse on every protectionist metric, except resort to murky protectionism

 

Implications for the St Petersburg G20 summit

In the light of the evidence presented here and that in the latest Global Trade Alert report, the current G20 approach to promoting open trade and investment regimes is not fit for purpose. In recent years not only have G20 members resorted to protectionism more frequently than at the beginning of the crisis, they have rolled back few crisis-era beggar-thy-neighbour measures. This means that the stock of crisis-era protectionist measures imposed by the G20 members keeps on growing.

As of the end of August 2013, the G20 members have implemented a total of 1527 beggar-thy-neighbour measures since they adopted their standstill on protectionism in November 2008. Just under 89% of these protectionist measures remain to be unwound. Furthermore, G20 resistance to protectionism and promoting its rollback is worse than the mid-sized trading nations that did not take this standstill pledge. The glaring flaws in the G20’s ‘softly softly’ approach are apparent.

Given its record on protectionism the choice before the G20 members is to ‘mend it or end it’. If the non-binding G20 approach is to amount to peer pressure rather than peer protection, then monitoring of the protectionist pledges must not only be stepped up but also acted upon. Sweeping these matters under the carpet and pulling punches – when unsparing criticism of breaches is needed – hasn’t delivered and won’t deliver, all of which undermines the credibility of the G20. The only silver lining to the G20’s woeful record is that WTO looks more effective, relatively speaking.

Assuming that the goal of G20’s work on protectionism is still to resist it, consideration should be given as to whether the deliberative functions of the WTO could be deployed to assess crisis-era protectionism and to encourage its unwinding. In sectors where beggar-thy-neighbour activity has been most intense initiatives could be devised in Geneva to promote simultaneous, unwinding of protectionism over time – the commercial policy equivalent of mutual disarmament. For sure WTO processes can take time and can get bogged down – but after the last five years, the leading non-binding alternative has hardly covered itself in glory.

References

Global Trade Alert (2013), website, available at http://www.globaltradealert.org/14th_GTA_report.

Evenett, Simon (2012a), “Débâcle: The 11th GTA report on protectionism”, VoxEU.org, 14 June.

Evenett, Simon (2012b), “Rising protectionism and the subordination of trade policy”, VoxEU.org, interview, 20 July.

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Topics:  International trade

Tags:  protectionism, Global Trade Alert

Professor of International Trade, University of St. Gallen and Member of the Warwick Commission on the Future of the Multilateral Trading System after Doha. Co-Director of the CEPR Programme in International Trade and Regional Economics.