As the recent public recriminations over the Sino-EU trade dispute on solar panels have shown, favouring domestic firms at the expense of foreign rivals can be a transparent, noisy, and diplomatically painful matter. Such protectionism may have much in common with the 1930s but it is not representative of contemporary policy choice, as the 12th Report of the Global Trade Alert shows.
Nowadays, many governments are adept at tilting the playing field in a way that their trading partners, the media, and analysts find hard to track. Over the past year, beggar-thy-neighbour policies have made a quiet but significant resurgence. The first estimates of the amount of protectionism imposed in Q4 2012 and Q1 2013 are the worst that the Global Trade Alert team has compiled since November 2008, much worse than in Q1 2009 when policymakers lost sleep about protectionism.
Given that the holder of this year’s G8 Presidency, the UK, has made combatting protectionism a priority (BBC 2013) and this Report has been compiled and released just before the G8 Summit in Lough Erne, Northern Ireland, on 17-18 June 2013. Concerns about protectionism are not confined to the UK, however. In April 2013, when introducing reduced forecasts for world trade growth, the Director-General of the World Trade Organisation, Pascal Lamy, warned that the protectionist threat may be greater now than at any time since the onset of the global economic crisis (Reuters 2013). On the basis of the evidence presented here, Mr Lamy’s concerns were well founded.
Building on a massive update of the Global Trade Alert, that saw 904 new entries added to the Global Trade Alert database which now comprises 3,334 reports on government measures, this Report provides a comprehensive overview of the current state of protectionist and trade liberalising dynamics. The principal findings of this Report are:
- Protectionism’s made a quiet resurgence. The initial counts of protectionism imposed in Q4 2012 and Q1 2013 are the worst since the financial crisis began.
- 431 new protectionist measures were imposed in the year June 2012-May 2013, substantially outnumbering the 141 commerce-liberalising measures implemented. A further 183 protectionist measures are in the pipeline.
- G8 nations were responsible for 30% of protectionist measures imposed during the past 12 months. When the rest of the G20 are included, the largest economies in the world are responsible for 65% of all protectionism imposed since June 2012.
- Half of the past year’s protectionism has harmed at least one G8 member. Having a large economy is no shield against protectionism. In the past year alone G8 commercial interests have been hit often by others’ protectionism – ranging from 70 hits for Russia and Canada to 146 blows to US commercial interests.
- As so little crisis protectionism has been unwound, the harm to G8 interests keeps piling up. Every G8 member, except Russia and Canada, has seen their exporters, investors, and nationals working abroad harmed more than 500 times since November 2008. US commercial interests have been harmed 784 times.
- Non-G8 member China is the nation most frequently harmed by foreign protectionism. China’s interests have been hit just under 1,000 times since November 2008.
- Traditional forms of protectionism – which are subject to tougher WTO rules – still represent less than half of all beggar-thy-neighbour measures. The loopholes in trade rules have meant that smart governments don’t need to openly flout the WTO.
Protectionism’s quiet return
Since so much crisis-era protectionism is not transparent, the Global Trade Alert team has come to expect low initial counts of the number of beggar-thy-neighbour measures implemented in the most recent quarters.1 The last quarter of 2012 and the first quarter of 2013 broke the mould, as shown in Figure 1.
In our last report, published in June 2012, our first estimate of the number of protectionist measures imposed in Q2 2012 was just 26. In this report, our first count for Q4 2012 and Q1 2013 are almost five times higher, at 127 and 125 respectively. These are the highest first counts of the number of protectionist measures for recently concluded quarters that the GTA has ever found. To see this, the worst quarter so far in the crisis-era in terms of protectionism imposed was Q1 2009, when the first count was 77. Subsequently, another 100 or so protectionist steps were found to have been taken in Q1 2009. If Q4 2012 and Q1 2013 repeat this pattern, then the quantum for recent protectionism could easily be revised up into the 200-250 range.
With the exception of the occasional trade spat, this resurgence in protectionism has been accomplished quietly. Governments have become adept at tilting the playing field in favour of domestic firms without provoking the ire of trading partners. Figure 2 shows that the larger trading nations – G8 members and the other members of the G20 – account for the lion's share of the 431 protectionist measures implemented during the year from June 2012 to May 2013.
The eight Lough Eire summit attendees alone account for 30% of the protectionist measures implemented worldwide in the past year (see the first column of Figure 2). All together, the G20 countries are responsible for 65% of all measures imposed in the past year that harm trading partners. The BRICS account for twice as much recent protectionism than the EU member states, the European Commission, and the United States combined (see the second column of Figure 2).
Although trade defence (anti-dumping, anti-subsidy, and import surge) measures were the most commonly used protectionist measures in the past year, together with tariffs (another form of traditional protectionism) they accounted for 174 of the 431 beggar-thy-neighbour policies implemented during June 2012 to May 2013. Governments still resort more often to measures less well-disciplined by WTO rules. Indeed, five years into the crisis governments are still awarding lots of trade-distorting subsidies (see the last column in Figure 2). Migration restrictions saw a big increase in the past year too.
The latest league tables of the most protectionist nations on Earth
While the G8 summit inevitably puts the spotlight on its members’ behaviour, of course there are plenty of other countries in the world, many of whose governments resort to protectionism. No organisation has the resources to estimate case-by-case the value of either the trade affected by each protectionist measure or the actual harm done to trading partners. Still, four other metrics can be compiled readily with the information available and provide different ways to assess the scale of protectionism resorted to by a government since November 2008.
These are the number of almost certainly discriminatory measures implemented by a jurisdiction (those measures coded red in the GTA database), the number of products affected by the (red) protectionist measures implemented by a jurisdiction, the number of economic sectors covered by (red) protectionist measures implemented by a jurisdiction, and the number of trading partners harmed by the (red) protectionist measures implemented by a jurisdiction.
Table 1. Which countries have inflicted the most harm since November 2008?
Note: Information on the number and scope of the measures classified “almost certainly discriminatory” in the GTA database were used to compile these rankings.
In Table 1 the ten worst economies are ranked on each metric.2 Canada and Japan are the only G8 nations not to be represented anywhere in these rankings. What is striking is the domination of these rankings by the larger trading nations – in particular, the G20 members. Moreover, taken together, the members of the European Union top three of the four rankings of most protectionist jurisdiction. Argentina, China, India, and Italy appear twice in the top five lists of most protectionist nations.
As to the scale of protectionism, eight of the top ten countries have taken measures that distort trade of more than 500 product categories, amounting to at least 40% of all products in a widely used classification. When jurisdictions are ranked by the number of economic sectors affected by own government protectionism, every one of the top ten worst jurisdictions has tilted the playing field in over half of the sectors in their economies.
When ranked in terms of the number of trading partners harmed, of which there are a maximum of 232, every one of the ten worst jurisdictions harmed at least 159 trading partners. In the most protectionist nations attempts to diminish the scale of beggar-thy-neighbour policies should be dismissed. That so many of the world’s most protectionist nations are its largest economies is a real concern, especially as so much crisis-era protectionism remains to be unwound.
Summary and recommended actions
The past 12 months have seen a quiet, wide-ranging assault on the commercial level playing field. Governments have found ways to routinely favour domestic interests without provoking the ire of trading partners. Artful governments found no need to openly flout WTO rules either – instead, they used the wiggle room in existing rules and, if that wasn’t enough, employed policies not well disciplined by multilateral trade rules. Little of this showed up in traditional monitoring that was designed – like WTO rules – to tackle the protectionism of yesteryear. Less than half of recent protectionism involves measures for which data was collected on systematically before the crisis.
This Report fills in the informational vacuum and, in doing so, reveals that the first readings of protectionism imposed in Q4 2012 and Q1 2013 far exceeds anything seen since the onset of the global financial crisis. When protectionist dynamics were viewed as a compelling threat to the world economy in early 2009, defenders of an open trading system took up arms. They would be wise to do so again before international commerce fragments further along national lines.
The G8 should take a stand at its forthcoming summit. Business as usual should be rejected. The G8 should go beyond making soothing comments about resisting protectionism and launch an initiative to unwind protectionism. A good place to start is to remove the 37 measures implemented by G8 governments that harm the Least Developed Countries, so reversing protectionism and promoting economic development in one fell swoop.
BBC (2013), “UK assumes presidency of G8 group”, 1 January.
Global Trade Alert (2013), "Protectionism's Quiet Return: GTA's Pre-G8 Summit Report", globaltradealert.org, 12 June.
Reuters (2013), “WTO cuts 2013 trade forecast, sees protectionist threat”, 10 April.
1 Experience had shown that initial estimates were revised up – often markedly – over time. Unless there has been a misclassification error, the total number of protectionist measures reported in a given quarter can only go up over time as more and more protectionist measures are uncovered by the GTA. The GTA team does not use statistical tools to forecast the number of protectionist measures implemented in a quarter. Instead, the team counts the number of government measures that can be documented.
2 Where relevant in these rankings, data on all of the measures taken by the EU member states and the European Commission are reported, denoted EU27. Since the European Union likes to be seen as a force in world trade, reporting its combined contribution as well as that of each member state seems appropriate.