The Hindu Business Line : Trading in protectionism?

But, given the vastly weakened demand from the key industrialised economies because of the economic slowdown, global merchandise trade growth rate is projected to contract by a further 2.1 per cent in 2009.

Slowdown in exports

Prospects for the larger emerging economy exporters are bleak. China’s exports in November 2008 fell 2.2 per cent year-on-year (the first such drop in seven years) and growing reports of factory closures indicate that future orders have also declined significantly.

In India, exports decelerated by over 12 per cent in October 2008; several Export Promotion Councils (EPCs) have informed the Commerce Ministry about the ‘noticeable decline’ in export orders, cancellation of pro-forma invoices, re-negotiation of orders and prices by buyers and slowdown in export realisation.

It would appear that this slowdown has started a retaliatory war of mostly non-tariff trade protectionism.

Countries have begun to impose protectionist measures such as export subsidies and bans, higher anti-dumping and other safeguard duties, and a general tightening of technical standards of imported products.

Despite the pretence of being a free trade nation, even the US has significant barriers to trade that come in the form of tariffs, quotas and steep regulatory barriers; there is a further push to make them more onerous.

Impact of tariffs

Most analysts agree that concluding the Doha Round of WTO negotiations at the soonest may help to keep the trade engine humming by preventing policy rollback.

It will also help lock in some part of the liberalisation of the past decade, especially in the external tariff rates of Member countries. There is a fear that many countries may raise tariffs without breaking any rules, as they have, in the past decade, unilaterally cut tariffs to well below the bound limits of the Uruguay Round of negotiations.

If all countries were to raise tariffs to the maximum allowed, the average global rate of duty would be doubled, according to Antoine Bouet and David Laborde of the International Food Policy Research Institute in Washington DC. The effect could shrink global trade by 7.7 per cent, and potentially start a 1930s-style trade deceleration.

Widening the agenda

The difficulty, however, lies in making countries and other stakeholders act decisively to prevent the above scenario from unfolding.

As a solution, in a recent Foreign Affairs article From Doha to the next Bretton Woods, Aaditya Mattoo and Arvind Subramanian have argued in favour of enhancing the Doha agenda to re-energise the private sector interest in multilateral trade negotiations.

They argue that the current ‘narrow’ scope of the trade liberalisation agenda under Doha promises only marginal gains, and an expansion of the agenda ‘seems preferable to being stuck in the eternal regress of negotiating an inconsequential agenda’.

What with the ambitions of a big WTO deal stoked in Doha, no member is happy to sign on a Doha-lite deal. To be fair to the authors, they are not alone in suggesting that a vastly enhanced negotiating agenda is preferable , even if such an action adds to more confusion and delay in concluding the Round.

It would appear that the objective behind proposing such a wide and more complicated agenda is to create enough obfuscation to mask the rich country private sector’s current maximalist demands and minimalist offers, and (may be) to buy enough time for them to reorganise and restructure to be able to make more credible offers.

Proponents of the above theory argue that a reduction of tariff bindings in emerging economies does not offer enough incentives to rich country exporters unless the new bound rates fall below the applied tariff rates. And, if that is not possible, rich countries would need more sops (by way of additional items on negotiating agenda) to participate effectively in negotiations.

Issues to be addressed

However, the authors seem to overlook the fact that there is a significant amount of gains to be had from binding tariff rates, as proposed under the ongoing NAMA negotiations.

Even if the emerging economy protectionist measures of rolling back the unilateral tariff liberalisation does not come to pass to the fullest extent, even minor roll backs would restrict market access of industrial country products in key items of trade interest.

Concessions to be made in other areas for gaining transparency are certainly not disproportionate. It should also be remembered that the rich country offers at WTO today do not:

address the critical issue of extremely high applied duties, particularly for farm products and manufactured products of export interest to developing countries;

take into account the additional barriers imposed by trade remedies (anti-dumping, countervailing duties and safeguards); and

address the ever-increasing and aggressive use of distorting regulations on subsidies, health and safety standards and technical barriers to trade, such as licensing and certification requirements to shield domestic industries, particularly in agriculture where the stakes are high and the rules murky.

These need to be addressed openly during negotiations rather than widening the agenda to non-trade issues.

(The author is a Visiting Senior Research Fellow with the Institute of South Asian Studies, National University of Singapore. The views are personal.)

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