The Hindu Business Line : Fighting protectionism

The country’s leading industry associations and chambers of commerce have raised their voice against the growing threat of protectionism around the world, especially in industrialised countries, and have requested the Prime Minister, Dr Manmohan Singh, to register his protest at the G-20 meeting in London. The apprehension that erection of protectionist walls by countries would affect world trade adversely and neutralise the gains of the recent decades is no doubt ju stified. It is well understood that protectionism does not just mean changes to trade and tariff policies that discourage, if not wholly prevent, entry of goods and services from abroad. Forced use of local resources, differential treatment to local and overseas goods and services, and direct subsidies to domestic producers also exert the same negative effect on trade. As experts have observed, support to a sector in one country, whatever the motivation or provocation, disadvantages the rest of the economy as well as competing sectors in other countries. What follows is a subsidy war or protectionist battle. Given their economic and other vulnerability, poor countries which cannot afford to compete on the basis of subsidies will find themselves excluded from the market. The advances made in recent years by some developing countries, helped by open trade, run the risk of being lost.

That said, it must also be appreciated that the policy environment around the world is becoming increasingly complex. The ongoing financial crisis, market meltdown and collapse of commodity prices have all combined to shake the confidence of even once-mighty governments. Every country is desperately seeking to protect jobs, fully utilise indigenous resources and insulate domestic producers from competitors overseas. Most governments — even those that have for long professed absolute free trade — are struggling to reconcile political compulsions to protect domestic interests and obligations under the World Trade Organisation or other trade agreements. While attempting to influence the developed countries, in trying times like these, it is best to discuss how the present crisis could be converted into an opportunity to revive trade reforms, especially in developing countries.

Ironically, India too has been accused of practising protectionism. Last year, when global food prices were soaring, India banned the export of rice, wheat, pulses and maize primarily because of domestic politics. Continuing export controls on these actually weakens the moral basis of India’s stand against protectionism. There is also suggestion that the G-20 should negotiate with the OPEC for stabilising crude oil prices by fixing a price band. While the idea is laudable, it is unlikely to work in practice.

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