Trade policy through 2013: Signs of improvement but new policy concerns

Chad P Bown, 27 June 2014

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How countries apply their trade policies has been of heightened interest since the early days of the Great Recession (Baldwin and Evenett 2009). While applied import tariffs have proven resilient to change, the temporary trade barriers of antidumping, safeguards, and countervailing duties have become important to understanding the year-to-year churning that arises under modern commercial policy. Here we summarise evidence from the World Bank’s Temporary Trade Barriers Database – that has been newly updated with data through 2013 – for more than 25 major economies.

In the coal mines, the canaries live another day

The leading indicator of forthcoming import protection involves government decisions to initiate new temporary trade barrier (TTB) investigations. Governments initiate such investigations after receiving petitions filed either by a domestic industry or by a labour group claiming to suffer injury from import competition. A substantial body of research across a number of high-income and emerging economies links these indicators to weakness in the underlying macroeconomic climate. Import protection has been shown to follow declines in domestic real GDP growth, increases in the unemployment rate, and real exchange rate appreciations (e.g. Knetter and Prusa 2003, Irwin 2005, Bown and Crowley 2013, forthcoming). Furthermore, among the relatively limited increases in import protection on aggregate witnessed during the Great Recession – including through tariff policies – TTBs turn out to have been some of the most economically meaningful (Kee et al. 2013).1

The lower half of Figure 1 reveals the first piece of good news for 2013. Overall, the major economies experienced a relatively low share of their imports becoming subject to new TTB investigations. The evidence for both the G20 high income countries and emerging economies is that there were low levels of ‘flow’ of potential new import protection arising in 2013.

Figure 1. G20 high-income versus G20 emerging economies' use of temporary trade barriers, 1997-2013

Note: The share of G20 nonoil imported products at the HS-06 level does not include imports or TTBs imposed by Mexico, Russia, or Saudi Arabia. It is constructed by the author following the methodology in Bown (2011b), applied to updated data available from Bown (2014). Country-specific applications of Figure 1 are available from the World Bank’s Temporary Trade Barriers Database website.

Furthermore, 18 of the 28 countries listed in Table 1 had a smaller share of imported products in 2013 involved in new investigations than the country’s annual average over 1995-2012. In fact, only Brazil, India, and the US had 0.5% or more of their products become subject to new investigations in 2013, and these are countries for which such higher levels are not atypical.2

Table 1. Import protection and temporary trade barriers through 2013

Notes: Simple average share of nonoil import products at the HS-06 level. Constructed by the author following the methodology in Bown (2011b), applied to updated data available from Bown (2014). All TTBs includes a non-redundant accounting of antidumping policies, countervailing duties, global safeguards, and China-specific transitional safeguards. MI = a known user of the policy but for which HS-06 product data needed to construct the estimates is missing.
*Annual average calculated over 1995-2012 or the sub-period for which the particular country’s data was available. The average applied MFN tariff is the simple average for the most recent year available (2012 or 2011) and is taken from the WTO’s World Tariff Profiles.

Evidence in 2013 of year-over-year reductions in the accumulated stock of import protection

The second piece of goods news is evidence that cumulative levels of imposed TTB import protection in 2013 remained relatively flat or even declined slightly in comparison with 2012. A decline occurs when the share of imports covered by the TTBs being removed is larger than the share covered by the TTBs that are newly imposed.

Figure 1 indicates a potential peak in 2011-12, and evidence of a slight decline in 2013 for the ‘stock’ of imports collectively covered by TTBs imposed by G20 high income and emerging economies. Table 1 also indicates that 14 out of 27 countries reported declines (or stagnant levels) in 2013 relative to 2012, and most of the 13 other reported only slight increases.

By removing previously imposed TTBs covering a large share of imports, countries like Turkey and the US actually did much better in 2013 than simply maintaining the status quo. Turkey finally removed safeguards on steam irons and vacuum cleaners (imposed since 2006) and cotton yarn (imposed since 2008). The US finally removed antidumping and/or countervailing duties on salmon from Norway (imposed since 1992), steel plate from Italy and Japan (imposed since 2000), honey from Argentina (imposed since 2001), and orange juice from Brazil (imposed since 2006), among others.

Peru is the only country for which there is evidence of a substantial increase in TTB import coverage in 2013. Peru’s increase was due to a significant set of new antidumping import restrictions imposed on textiles and apparel imports from China.

Great Recession hangover? TTB coverage in 2013 still higher than 2007

A lingering concern for policymakers is that more imports in 2013 remain covered by TTB protection than was the case in 2007, the year prior to the onset of the Great Recession.

In particular, the G20 economies used TTBs to collectively cover a 33% higher share of imports than in 2007. Nevertheless, Figure 1 does illustrate a sharp distinction between G20 emerging and high-income economies. G20 emerging economies have imports covered by TTBs at a rate that is nearly 50% higher in 2013 than in 2007, whereas the level is only 13% higher for G20 high-income economies.

At the country level, Table 1 indicates that Argentina, India, Indonesia, Peru, and the US are covering more than one full percentage point of their import products with TTBs in 2013 than in 2007. And among the major TTB users in the G20, only China, the European Union, Mexico, and South Africa had lower levels of import coverage in 2013 than in 2007.3

Emerging-market exporters are the targets of TTBs

While TTB import protection levels may be levelling off, it is worth recalling that the incidence of imposed TTBs is not evenly spread across exporting countries. Historically, the exporters targeted by TTBs are typically the newest entrants into global markets. Beginning in the 1980s, it was exporters from Japan, South Korea, Taiwan, China and other Asian countries (Prusa 2006). In the 1990s and the first decade of the 2000s, exporters from China were the policy focus.

While a number of these countries remain prominent targets, Table 2 lists some new additions. Emerging economies such as Ukraine, Russia, India, Macedonia, and Moldova, for example, each also have more than 2% of their nonoil exports to the G20 import markets subject to TTBs in 2013.

Table 2. Countries with largest share of exports subject to G20-imposed TTBs in 2013

Note: Trade-weighted share of nonoil exports to the G20, excluding exports to and TTBs imposed by Russia or Saudi Arabia. Constructed by the author following the methodology in Bown (2013) applied to the updated data from Bown (2014).

Policy implications: Vigilance needed for upcoming antidumping sunset reviews

The most pressing issue that many trade policymakers confront is how to ensure that previously imposed TTBs are unwound on schedule. This is especially worrying given the higher levels of 2013 TTB coverage in comparison to 2007, and that many of the TTBs imposed during the early phase of the Great Recession are now up for review.

In terms of specific policy instruments, most of the recently imposed safeguards have now been eliminated – see, for example, Turkey’s policy removals described above. Exceptions include India and Indonesia, where economically significant safeguards remain imposed.

Antidumping is the culprit behind most of the remaining TTBs in place as of 2013. Nevertheless, dozens of antidumping sunset review investigations – the decision point for whether a particular import restriction is to be removed – are set to take place over the next three years, at the five year mark after their initial import restriction was imposed.

Trade policy monitors must watch these upcoming antidumping sunset reviews investigations with vigilance.

Conclusion

Newly arriving evidence for 2013 suggests that, after almost continuous increases beginning with the onset of the Great Recession in 2008, overall levels of TTB-import protection may have finally peaked.

Whether a symmetric winding down of the TTBs imposed during the Great Recession takes place will depend on how seriously policymakers treat the antidumping sunset review process over the next three years. Their failure to terminate these temporary trade barriers on time would prove a black eye for the multilateral trading system’s otherwise stalwart response to the Great Recession.

References

Baldwin, Richard E and Simon Evenett (eds.) (2009), The Collapse of Global Trade, Murky Protectionism, and the Crisis: Recommendations for the G20, A VoxEU.org Ebook, March

Bown, Chad P (2014), Temporary Trade Barriers Database, The World Bank, June.

Bown, Chad P (2013), "Emerging Economies and the Emergence of South-South Protectionism," Journal of World Trade 47(1): 1-44.

Bown, Chad P (ed.) (2011a), The Great Recession and Import Protection: The Role of Temporary Trade Barriers, London, UK: CEPR and World Bank.

Bown, Chad P (2011b), "Taking Stock of Antidumping, Safeguards and Countervailing Duties, 1990-2009," The World Economy 34 (12): 1955-1998.

Bown, Chad P and Meredith A Crowley (2013), “Import Protection, Business Cycles, and Exchange Rates: Evidence from the Great Recession,” Journal of International Economics 90(1): 50-64.

Bown, Chad P and Meredith A Crowley (forthcoming), "Emerging Economies, Trade Policy, and Macroeconomic Shocks," Journal of Development Economies.

Evenett, Simon (2013), What Restraint? Five Years of G20 Pledges on Trade. The 14th GTA Report, Centre for Economic Policy Research, London.

Gawande, Kishore, Bernard Hoekman, and Yue Cui (2014), “Global Supply Chains and Trade Policy Responses to the 2008 Crisis,” World Bank Economic Review, forthcoming.

Irwin, Douglas A (2005), “The Rise of U.S. Antidumping Activity in Historical Perspective,” The World Economy 28(5): 651-668.

Kee, Hiau Looi, Cristina Neagu and Alessandro Nicita (2013), “Is Protectionism on the Rise? Assessing National Trade Policies During the Crisis of 2008,” The Review of Economics and Statistics 95(1): 342-346.

Knetter, Michael M. and Thomas J. Prusa (2003), “Macroeconomic Factors and Antidumping Filings: Evidence from Four Countries,” Journal of International Economics 61(1): 1-17.

Prusa, Thomas J (2006), “East Asia’ s Anti-Dumping Problem,” The World Economy 29(6): 743-761.

Rose, Andrew K (2013), “The March of an Economic Idea? Protectionism Isn't Counter-Cyclic (Anymore),” Economic Policy 28(76): 569-612.

Footnotes

1 See also Evenett (2013). Bown (2011a) and Gawande, Hoekman, and Cue (forthcoming) also examine trade policy changes taking place during the Great Recession. We note also that Rose (2013) provides a counter-view that uses differently constructed measures of these policies and finds they are not related to the business cycle.

2 On a trade-weighted basis, only Brazil, Chile, Colombia, India, and the Philippines had greater than 0.5% of the trade-weighted share of their imports become subject to new investigations.

3 Other G20 countries with lower TTB coverage in 2013 than 2007 include Japan and South Korea; however, these countries have relatively little use of TTBs overall.

Topics: International trade
Tags: G20, Great Recession, protectionism, Trade barriers, TTBs

Lead Economist, World Bank; and CEPR Research Fellow