Trade protectionism: Can the juggernaut be stopped?

• Data indicates that the current wave of trade protectionism is not new, and has been in existence since the global financial crisis in 2008.
• The proliferation of trade distortions implemented by G20 members since their leaders last met is broad-based and not exclusively a Sino-US affair.
• Developing countries like India face a deadlock on several key issues, including non-tariff measures, agriculture protection and unilateral action by developed nations
• A meaningful reset for the WTO requires a new work programme that reverses the build-up in discrimination against foreign commercial interests

Backtracking from the trade liberalisation agenda is not a nascent phenomenon. While the US is currently leading in terms of trade protectionism actions through tariff escalations, there is abundant evidence that it is pervasive across many countries. Global Trade Alert (GTA) data reveals a significant reversal in trade liberalisation since the global financial crisis 2008, and especially since 2011.

Compared to earlier years, there has been a marked increase in trade protectionism worldwide in the aftermath of the last G20 Leaders’ Summit. Cognizant of the limited bandwidth to follow trade policy developments, perhaps some governments and those that lobby them have concluded that they can tilt the commercial playing field with greater flexibility.

According to the above graph, harmful interventions have been more actively implemented than liberal policies over the past decade. Tariff changes are amongst the easiest trade policy changes to spot. Raising them to please domestic constituencies is plain for all to see. Other government policies in the realm of protectionism can have a much lower profile, which makes for interesting analysis.

Since the last WTO Ministerial Conference in December 2017, trade officials have been struggling to take forward a number of unrelated, incremental initiatives. There is no apparent organising logic, nor any systemic perspective. During the short span between December 1, 2017 and April 15, 2018, the Chinese and American governments were responsible for a much larger percentage of G20 protectionism (42%). The proliferation of trade distortions implemented by G20 members since their leaders last met is broad-based and not exclusively a Sino-US affair.

Since 2008, countries topping the list of trade protectionism are the US (1,200 measures) followed by India (730), Russia (610) and Argentina (480). The number of anti-dumping initiations rose to a high of over 360 in 2018, nearly double the count seen in 2011. Conversely, the number of regional trade agreements, which saw a continuous rise post the Asian financial crisis in 1997-89 to reach a peak of 34 in 2008, declined sharply to a modest 8 in 2018. Importantly, the major chunk of protectionist measures does not comprise tariff measures. Approximately 70% of the G20 restrictive measures are in the form of export measures, mostly tax-based, followed by trade finance, import tariffs, subsidies (17%, including export subsidies) etc. 

Bridging the gaps

It may be useful to recollect that the WTO replaced the General Agreement on Tariffs and Trade (GATT) as an international organisation mainly to overcome frictions over trade interests. The economies of the developing and less developed world (with little bargaining power) were unable to gain market access in most of the developed economies (which were influential in negotiations), especially when it came to agricultural commodities. The deadlock on the issue of agricultural trade negotiations, first in the late 1980s and then in 2017, was no surprise. The disagreements between developed countries (the European Union and the US) and developing countries (Malaysia, Brazil and India) to reorient the farm regime in their favour continue, thereby threatening the WTO’s comprehensive development agenda.

The expectations of developing countries from trade also get belied due to sizeable support by the developed nations to their farmers in a situation of market failure and other uncertainties. The support through subsidies tends to bring distortions in commodity prices. The Organisation for Economic Cooperation and Development estimates the quantum of subsidies by developed nations to vary from US$ 300-325 billion annually, which is much higher than that estimated for developing countries. This has become a bone of contention in trade talks as farm lobbies in the US, Europe and Japan have steadily exercised political clout to influence officials and lawmakers to continue giving subsidies to farmers.

Another point of concern is that developed countries design and implement stringent non-tariff measures (NTMs), which exacerbate the problems faced by poor countries that are willing to export. NTMs significantly add to the cost of trade. However, the costs of acquiescence with many NTMs are asymmetrical across exporters because compliance depends on production facilities, technical know-how and infrastructure — factors that are usually inadequate in developing economies. These countries are, therefore, unable to compete in international markets and hardly gain from sectors with comparative advantage such as agriculture, textiles and apparels.

Developing countries are willing to break the deadlock on these issues and are preparing a common ground to alter the mandate of the global trade body. India, in particular, seeks amendment of laws on unilateral action by members on trade issues and a resolution of the WTO’s dispute settlement system. The expectation is that the meeting may lead to policy guidance on issues such as global norms to protect traditional knowledge from patenting by corporates, protection through subsidies, e-commerce, food security and continuation of special and differential treatment to poor economies.

A meaningful reset for the WTO requires a new work programme that reverses the build-up in discrimination against foreign commercial interests witnessed, since the global financial crisis began. The time is opportune for developing countries to voice their concerns and push for a stable and transparent environment for multilateral trade. India must do its homework to focus on the unresolved issues and address the newer ones, which are of interest to developed nations, mainly investment facilitation. The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters.