Mounting tensions pose a test for world trade

Simon J Evenett interviewed by Viv Davies, 25 Nov 2011

Simon Evenett talks to Viv Davies about the 10th Global Trade Alert report, which concludes that the protectionist threat to the world trading system is as significant now as it was in early 2009. Evenett suggests that there has been considerable resort to the use of non-tariff barriers and more murky forms of protectionism and that countries continue to circumvent WTO rules. He concludes that policymakers have reason to be seriously concerned and that the world trading system may face its greatest test yet in the year ahead. The interview was recorded on 24 November 2011. [Also read the 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 am Viv Davies from the Centre for Economic Policy Research. It's the 24th of November 2011 and I am speaking to Professor Simon Evenett of St. Gallen University about the recently published 10th Global Trade Alert report titled "Trade Tensions Mount". The report's findings suggest that the protectionist threat to the world trading system is probably now as significant as it was in the first half of 2009, when such concerns were at their height.

Evenett suggests that there has been a significant resort to the use of non‑tariff barriers and more murky forms of protectionism, and that countries continue to circumvent WTO rules. He concludes that policymakers have good reason to be seriously concerned in view of the likelihood of a deteriorating macroeconomic climate.
I began the interview by asking Simon whether we've seen a significant rise in protectionism since the publication of the last GTA report in July 2011, just four months ago.
Simon Evenett:  I am afraid we have. The third quarter of 2011 saw no less than 72 protectionist measures implemented and has an early reading on that level of protectionism that's exceptionally high. Normally we revise up our estimates of the protection quarter by quarter, and 72 is a very high initial reading comparable to some of the worst quarters in 2009 when protectionist fears were at the highest.
Viv:  And what impact has the slow growth and recessionary environment in Europe generally had on the region's trade with the rest of the world, and what are the likely implications of that?
Simon:  Well the European downturn is leading to less exports from the rest of the world to Europe and that of course is making other countries more defensive in terms of their trade policies. We haven't seen any big uptick in European protectionism, certainly not from the European Commission. We are now seeing beginnings of financial protectionism in Europe. Recently, Austria instructed its banks to cut back on the amount of lending to Eastern Europe, and this of course will diminish borrowing opportunities in those countries and will tip those countries' economies down towards a recession as well.
Viv:  So wouldn't it be expected, given the current climate of austerity coupled with the sort of domestic pressures that many governments are facing in Europe and around the world, that the natural reaction of those governments is to turn inwards and to protect and support national industries and jobs?
Simon:  I think in times like this, governments are more inclined towards protectionism. This is unfortunate because often the short‑term measures which they take aren't particularly effective and end up costing their economies quite a lot of money, but that has been the tendency in the past, and I think it will repeat this time around as well.
Viv:  And could you give us a sense of the numbers involved in terms of the increase in trade protectionist measures that have been reported and analyzed through GTA in the last few months?
Simon:  Yes, well as I said earlier, the third quarter numbers are very high in terms of reported protectionism, but this follows findings of over 100 new measures since our last report in July, and revisions are upwards for the first quarter of 2011 and the last quarter of last year. So it all points to a picture of a deteriorating climate for protectionism from about the middle of the last year. Formally, I think we found 199 new measures in the GTA database, and as I said last year 100 of them were almost certainly protectionist, and then if you add in the ones which are likely to be protectionist, you get well over the 100 number.
Viv:  And what kind of measures are being implemented the most and which countries or regions are most responsible?
Simon:  There is a variety of measures being implemented. One thing which is important to note is that only a fraction of the recent protectionist measures are actually anti‑dumping measures or tariff increases, and that's where most researchers unfortunately focus their attentions. Instead, we've seen actually quite a number of non‑tariff barriers be raised, more murkier forms of protectionism resorted to, including different types of widespread industrial policy initiatives.
So, Brazil for example, had a very wide-ranging industrial policy initiative that it announced last month. It also announced new restrictions on foreigners buying and selling different types of land and other assets in Brazil. So we've seen the non‑traditional trade measures or non‑traditional protectionism increase substantially.
Viv:  And are we seeing any signs of trade liberalising measures around the world?
Simon:  There has been some trade liberalisation and we mustn't discount that. Countries are still trying to compete for foreign direct investment and to encourage parts and components trade. So we do see some liberalisation taking place. Since July of 2011, we've found 55 measures, which were either neutral towards trade or liberalising, and so there is still a fair amount of measures which aren't necessarily protectionist being implemented, but unfortunately the number of protectionist measures are outnumbering the number of liberalising measures between two- to three-to-one.
Viv:  And what are the significant trends, if any, in protectionist policies has GTA become aware of?
Simon:  Well, I am afraid it is more the continuation of trends we've identified for some time, which is the resort to measures which are not very well disciplined by WTO rules or measures where there are no WTO rules whatsoever. And one of the trends that the GTA has founded in this last crisis, governments have circumvented their WTO obligations. They haven't broken them. They just found ways around WTO rules or they've concentrated their efforts in policies where there are no WTO rules, and I think that's a fundamental lesson for policymakers going forward.
Previous bursts of protectionism, whether it's the 1930s or the 1980s, saw exactly the same phenomenon, and we've seen it this time around as well, which is that international trade rules only go so far in limiting protectionism.
Viv:  And how would you describe some of the kind of relations between the world's major trading partners right now, like China and the US for example?
Simon:  I think there has been a worrying deterioration in the trade relations between the major players. We've seen very nasty disputes between China and the United States develop in the area of solar power. We've also seen similar concerns raised by the United States and Europe with respect to India's programs in environmentally sensitive sectors. We've also seen America assert that China has nearly 200 subsidy programs employed during the crisis, and the Chinese admit to implementing just under 100 of them, if that was a series of counter submissions to the WTO.
So what we've is actually an escalation in trade tensions between the larger trading powers. In short, the trade concerns are not being as contained as we might have hoped or as was the case at the turn of the last year.
Viv:  And so what do you say the policy implications of your findings are, Simon, and how optimistic are you that things can improve?
Simon:  The policy implications are several-fold. First, the call for vigilance and for greater tenacity in standing up to protectionism still stands. The risks I think of a downside for the economy are higher, and so I think the risk of a protectionist upswing is higher, and this is where the defenders of free trade really do need to be at their most vigilant. This is going to require support for business associations, the media and academics and the like in order to try and point out the alternatives to protectionist policies.
The second set of implications has to do with how we manage disputes between the big trading partners, and I think they really want to think very hard before they start raising disputes which could spiral out of control and begin to perhaps start a process of unwinding the measures that they put in the crisis rather than trying to litigate directly at the WTO.
And thirdly, we need to start appreciating the limited role that multilateral trade disciplines have played in curbing protectionism and start thinking about what new WTO rules we need in order to prevent this type of outbreak from happening again.
Viv:  And you are optimistic for the future, Simon?
Simon:  I am not particularly optimistic because I feel the macroeconomic situation in Europe will get a lot worse. Of course, macroeconomics is well beyond GTA's remit, but if the experts in that field are to be believed, then we are looking to a very grim 2012, and the world economy may find itself under considerable strain. For that reason, I am not so optimistic that protectionism will be able to be kept in line over the next 12 months, and all the more reason why policymakers and others need to stand up for an open trading system.
Viv:  Simon Evenett, thanks very much for taking the time to talk to us.

Simon:  Thank you.


Topics: International trade
Tags: Global Trade Alert, protectionism

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.