The Hindu Business Line : A time for protection?

While developed economies must take steps to protect their domestic industries from recession-induced cheap imports, the over-arching strategic advantages of free trade even in such difficult times cannot be over-emphasised.

Ranabir Ray Choudhury

The recession gripping the international economy — the worst since the 1930s — will work itself through the system in, maybe, another 12 months, straining the sinews of every economy on the planet. The one general characteristic which is already evident is that there is a sharp drop in demand in nearly every sector of the world economy which has led to, among other things, a steep fall in prices. In tandem with this decline, export prices have also fallen, maki ng items competitive — but in a situation where there are few takers.

Even so, because the prices of imports have fallen, domestic industry in a host of economies is under great pressure and there is, consequently, a general clamour for the raising of protectionist barriers.

freer trade

India is no exception to this overall trend with the result that the UPA Government has officially said that, in the next few days, it will come up with “a slew of administrative steps, including the introduction of a temporary licensing regime for the import of select items”. A senior official is reported to have said in New Delhi: “For protecting domestic industry, we will take anti-dumping and other administrative steps”, as well as framing export-incentives so that hard-pressed Indian exporters trying to tackle an unresponsive world market could also make some headway.

Clearly, this is what is expected of the authorities at this point of time, the basic assumption however being that the road ahead will be anything but smooth given the identical trade-curbing policy-measures that other economies have probably already begun taking. But how does all this square up with the call for the promotion of freer trade made at the recent G-20 meeting in Washington, as also the entire structure of the WTO regulations, which was set up to further the interests of multilateral trade and to “punish” infringements of the guidelines?

To take the Washington meeting first, President Bush said that “trade and investment have linked our economies together — creating new customers for business and workers, and greater choices and lower prices for consumers”. He added: “All our nations must reject calls for protectionism, collectivism, and defeatism in the face of our current challenge”. The G-20 itself (as reported) “agreed to expand the Financial Stability Forum to include a broader membership of emerging economies and a 12-month hiatus on protectionist measures”.

The outgoing US President was of course saying the right thing at the right moment in view of the recessionary conditions prevailing in the world market and the urgent need to combat any national measures which would cut down on the volume of trade even further. Coincidentally, however, in doing so he was also backing his country’s general stand on the ongoing Doha Round of multilateral talks, which has been partly instrumental in stalling the talks.

Development dimension

Without doubt, this is a time when the strong economies would like their export markets to be opened up fully, which would not merely help their demand-starved domestic producers but would also be seen as strongly backing the freer-trade agenda of the multilateral trade negotiations.

But is this all there is to the agenda of the trade negotiations? In fact, at the heart of the Doha Round is the development dimension which has been creating problems for the developed economies. At the present juncture, this dimension should come in specially handy for the poor countries which should use the provisions of GATT 1994 and the Marrakesh Protocol to back any “protectionist” steps that they may be forced to take now.

The fifth paragraph of the Marrakesh Declaration (of April 15, 1994) proclaims clearly that the Uruguay Round negotiations embodied provisions “conferring differential and more favourable treatment for developing economies, including special attention to the particular situation of least-developed countries,” and that the Ministers agreed “to keep under regular review by the Ministerial Conference and the appropriate organs of the WTO the impact of the results of the Round on the least-developed countries as well as on the net food-importing developing countries, with a view to fostering positive measures to enable them to achieve their development objectives”.

This refrain is to be found in the Doha Declaration of November 14, 2001, the second paragraph of which reads: “International trade can play a major role in the promotion of economic development and the alleviation of poverty. We recognise the need for all our peoples to benefit from the increased opportunities and welfare gains that the multilateral trading system generates. The majority of WTO members are developing countries.

We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration. Recalling the Preamble to the Marrakesh Agreement, we shall continue to make positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development. In this context, enhanced market access, balanced rules, and well targeted, sustainably financed technical assistance and capacity-building programmes have important roles to play”.

Duties on cheap imports

The New Delhi official quoted above referred to “anti-dumping and other administrative steps” to keep cheap imports out. Clearly, GATT allows such measures but only under certain conditions which, it would appear, are prevalent today. Paragraph 6(a) of Article VI says that a WTO member cannot levy an anti-dumping duty or countervailing duty unless the impact of dumping or subsidisation “is such as to cause... material injury” to domestic industry. Paragraph 6(b) says that the condition of prior establishment of injury can be waived by the members concerned “in cases in which they find that a subsidy is causing... material injury” to domestic industry. Paragraph 6(c) says that “in exceptional circumstances... where delay might cause damage which would be difficult to repair”, a WTO member may impose a countervailing duty “without the prior approval” of the member countries concerned provided that such action is reported immediately to the countries involved “and that the countervailing duty shall be withdrawn promptly if the contracting parties disapprove”.

This is the existing WTO regulation framework for the imposition of anti-dumping and countervailing duties on cheap imports. But this is also a time of unprecedented world economic recession, which was not taken into account when GATT was first drawn up in 1947.

What makes the situation rather complex is that while developed economies must take steps to protect their domestic industries from recession-induced cheap imports, the over-arching strategic advantages of free trade even in such difficult times cannot be over-emphasised. It is quite clearly a case of a trade-off but a very difficult one indeed, specially in an election year for India.

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