Rising protectionism and the subordination of trade policy

Simon J Evenett interviewed by Viv Davies, 20 Jul 2012

Simon Evenett of the University of St Gallen talks to Viv Davies about the recent increase of protectionist measures in the world trading system. They also discuss the implications of the rise in regional trade agreements, the potential effects of Russia joining the WTO and the impact of slow growth in Europe on the region’s trade with the rest of the world. Evenett maintains that defenders of the world trading system should do more to prevent the current subordination of trade policy. The interview was recorded by telephone on 17 July 2012.

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See Also

See also:

Débâcle: The 11th GTA report on protectionism (Simon Evenett, 14 June 2012)

Mounting tensions pose a test for world trade (Vox Talk with Simon Evenett, 25 November 2011)

Transcript

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Viv Davies: Hello and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I’m Viv Davies from the Centre for Economic Policy Research, it’s 17 July 2012 and I’m speaking with Professor Simon Evenett of the University of St Gallen about the recent rise of protectionist measures in the world trading system. We also discuss the implications of the rise in regional trade agreements, the potential effect of Russia joining the WTO, and the impact of slow growth and recession in Europe on the region’s trade with the rest of the world.

I began by asking Simon what the recent rise in protectionism means for world trade. 

Simon Evenett: It means that the world economy is facing a greater risk of more closed markets and a stalled recovery because of protectionism. The recent uptick in protectionism has been mentioned not just by the WTO but by the European Commission, the International Chamber of Commerce and the so-called B20 group of business leaders. The findings of the Global Trade Alert report were discussed by some of the participants at Los Cabos, the G20 summit, and I think the profile of this issue has been raised appropriately by a large range of individuals and organisations.

Viv: What sort of protectionist measures are we seeing most commonly used now?

Simon: Measures being used at the moment are a combination of traditional antidumping, the so-called trade defence measures, some resort to subsidies by countries, especially those who have engaged in industrial policymaking initiatives, and also a number of export restrictions which are limiting the supply of commodities and other items to the world economy.

Viv: And what does this mean for the efficacy of WTO rules? Are they not working?

Simon: WTO rules have been negotiated over time and are still fairly incomplete. Where they are tough they’re very valuable and have probably done a good job in deterring some protectionism, but I would put a greater emphasis on the rules being incomplete and this inducing a switch in the form of protectionism. Overall I think the WTO rules have altered the composition of protectionism more than its level.

Viv: So who’s the biggest offender in terms of implementing protectionist measures? And who’s suffering the most as a consequence of protectionism?

Simon: Global Trade Alert cuts the data up in a number of different ways, and depending on different metrics you come out with different lead offenders. But amongst the top offending countries are Japan, the European Union countries taken together, Brazil, India, and China. Those are perhaps the worst five. Argentina also recurs heavily in the list of offenders.

In terms of the countries which have been hit the most these are the biggest exporters in the world, so obviously China, the United States, the major European nations, have been hit many, many times. We've seen over 500 hits for some of those countries since November 2008.

Viv: We’re also seeing quite a rise in the number of regional trade agreements being made. In 2010, for example, the China-ASEAN Free Trade Area was established; the European Union, too, is making deals with Colombia and Peru, with possible deals in the pipeline with India, Japan and the US. Is the rise of regional trade agreements a good thing for world trade?

Simon: The rise of regional trade agreements is probably mixed for the world trading system. There’s a long-standing concern amongst economists that regional trading agreements divert trade away from more competitive firms towards those which have tariff breaks.

But the other offsetting feature is that regional trading agreements have been fairly effective in introducing rules on behind-the-border policies, regulatory policies which affect domestic and foreign businesses as well. So any balance sheet of the costs and benefits is going to have to weigh up these two factors.

As tariffs come down over time, the trade diversion costs are probably getting smaller and smaller. They’ll probably be concentrated more in agriculture than in manufacturing, whereas the behind-the-border issues just seem to get more and more important over time. So on net I’m cautiously positive about regional trading agreements being a good force in the world economy, but I don’t believe you can argue that they’ve delivered a lot of economic benefits in most cases.

Viv: Okay. So Russia is, at last, just about to join the WTO. What do you think are the likely implications and consequences of that?

Simon: There are few people rejoicing that Russia is joining the WTO. This is partly because the Russian position on negotiations is not likely to be one which is open to further liberalisation. If anything the recent policy moves in Russia have been towards more protectionism and the substitution of imports. Overall, people are concerned about what the impact of Russia’s accession will be on negotiations and on the balance of those negotiations.

Furthermore, Russia will soon be subject to WTO dispute settlement and could well be the target of a number of enforcement actions by other countries, and this could make for some fractious times in Geneva as well. On net this is not the happiest development but, still, it’s better to have Russia inside the World Trade Organisation’s tent and hopefully over time its policy priorities will evolve.

Viv: What impact is the slow growth and recessionary environment having on Europe’s trade with the rest of the world? And what are the likely implications?

Simon: There’s a big knock-on effect of western European slow growth on trade with both eastern Europe and with China, and this is where we’ve seen the most immediate impact. This in turn I think is inducing, in the case of China, further government measures, including indirect subsidisation through their banking system as well as other measures to stimulate domestic demand.

The transatlantic effect of that has been rather limited but that’s because, again, the American and Canadian trade exposure is, while numerically rather large, proportionately not so big as a share of their exports. Not every region is particularly affected.
When it comes to the impact within Europe, again you would expect to see something of a downtick in imports in the periphery countries, which I think we are seeing, whereas Germany and some of the northern countries appear to be exporting plenty to the rest of the world. They seem to have substituted away some of their export dependency on the periphery for other, faster-growing, parts of the world. That realignment I think you’ll see continue.

Viv: Finally, Simon, what sort of future do you see for world trade? Are you optimistic?

Simon: I think world trade has been not a key priority of governments, or at least promoting world trade hasn’t been. I think trade policy has been subordinated below other policy objectives throughout this crisis. For as long as that is the case, one has to be a bit wary and cautious about where the world trading system is heading. I don’t think the current situation is anything to feel happy about. It’s certainly not excessively gloomy or anything like the 1930s, but I do think we need to be cautious and defenders of the world trading system need to be making a case for trade policy and openness as a government priority, instead of being outmanoeuvred by the other key players in the macroeconomic policy debates and debates about financial stabilisation.

 

Topics: International trade
Tags: free trade agreements, Global Trade Alert, protectionism, Russia, WTO

Débâcle: The 11th GTA report on protectionism

Simon J Evenett, 14 June 2012

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In recent weeks official bodies such as the World Trade Organisation and the European Commission as well as leading private sector associations – the International Chamber of Commerce (ICC) and the so-called B20 group of business leaders – have made strong statements concerning rising protectionism in the run up to the G20 summit in Los Cabos, Mexico.

Topics: Institutions and economics, Politics and economics
Tags: European Commission, Global Trade Alert, ICC, WTO

Why do trade negotiations take so long?

Christoph Moser, Andrew K Rose, 8 June 2012

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There is widespread agreement among economists that trade liberalisation is best conducted at the multilateral level. Indeed, facilitating multilateral negotiations is one of the primary objectives of the World Trade Organisation (WTO), as it was with its predecessor the General Agreement on Tariffs and Trade (GATT).

Topics: International trade
Tags: Doha Round, regional trade agreements, WTO

Resource trade: Policy and policy reform

Michele Ruta, Anthony Venables, 21 April 2012

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Resource trade is once again in the spotlight. Oil prices are up 14% since the beginning of the year, creating new concerns for the recovery of the global economy (Annunziata 2012). In March, the governments of Japan, the EU and the US filed a new dispute at the WTO with respect to China's restrictions on the exports of rare earths (WTO 2012).

Topics: Energy, International trade
Tags: natural resources, oil, WTO

Trade, Competition, and the Pricing of Commodities

Simon J Evenett, Frédéric Jenny, 15 February 2012

Trade, Competition, and the Pricing of Commodities

Edited by Simon J. Evenett and Frédéric Jenny

15 February 2012

URL: www.cepr.org
Topics: International trade
Tags: Cartels, CEPR, Commodity prices, CUTS, food prices, WTO

Effects of exchange-rate misalignments on tariffs

Vera Thorstensen, Lucas Ferraz, Emerson Marçal, 4 December 2011

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The subject of currency wars and trade wars is gradually gathering interest among scholars and public opinion. In the face of the magnitude of present misalignments and their clear impacts on trade, one may wonder why and how this issue is absent from trade rules and multilateral trade negotiations at the WTO in Geneva.

Topics: Exchange rates, International trade
Tags: exchange-rate misalignment, tariffs, WTO

Market-economy status for China is not automatic

Bernard O’Connor, 27 November 2011

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In EU trade-defence law (antidumping and anti-subsidies), there is provision for different treatment between those exporting countries which are considered to have the status of being a market economy and those which are not. If a country does not have market-economy status it is easier to construct the normal value of the exported goods.

Topics: Global governance, International trade
Tags: antidumping, China, WTO

Ten years of Doha: What to show and what to look forward to

Lionel Fontagné, 25 November 2011

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By June 2011, as negotiations on the Doha Development Agenda (DDA) were confronted by the seemingly irresolvable problem of sectoral initiatives in industrial goods, it was still hoped that agreement could be reached on a ‘least developed Countries (LDC) plus’ package including trade facilitation.1 Currently, this looks to be in doubt, despite the

Topics: International trade
Tags: Doha Development Agenda, WTO

What next for the WTO: Challenges for the WTO's eighth ministerial conference

John Weekes, 23 November 2011

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In thinking about preparations for the WTO's critical eighth Ministerial Conference in Geneva in mid-December, we should think about the nature of the WTO, how it has evolved, and take a careful look at the challenges that lie ahead.

Topics: International trade
Tags: Doha Round, trade negotiations, WTO

Unfinished business? The WTO’s Doha Development Agenda

Aaditya Mattoo, Will Martin, 8 November 2011

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The recent G20 communiqué on the Doha Development Agenda (DDA) marks a significant departure from past endorsements and exhortations (Bhagwati and Sutherland 2011).

Topics: International trade
Tags: Doha Development Agenda, Doha Round, WTO

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