News and Analysis • Volume 13 • Number 1 • March 2009

Protectionism in Times of Crisis

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Despite promises and exhortations to eschew protectionism emanating from a variety of international fora, evidence is mounting on a significant rise in the use of instruments that curb imports, boost exports or otherwise convey advantages to domestic industry.

According to the World Bank, some 78 trade measures have been proposed and/or implemented since the onset of the financial crisis (see graph on page 1). Tariff increases - excluding anti-dumping duties - account for about a third of these actions, the rest consist of subsidies and non-tariff measures, such as licensing requirements or port restrictions (see partial list opposite). The quasi-totality of developed country measures involve subsidisation as part of general stimulus packages or sector-specific support. Developed countries’ subsidies to their auto industries - mostly in the form of government loans/loan guarantees - total around US$42.7 billion out of US$48 billion worldwide. Some developing countries have made use of the ‘water’ in their WTO schedules of commitments to raise tariffs, as well as established non-tariff import measures, including outright bans in some cases (see graph below).

To monitor the extent of protectionism, the World Bank suggested that G-20 could commit to greater transparency by agreeing to provide “quarterly reports on new trade restrictions, industrial and agricultural subsidies to the WTO, together with a mandatory analysis of the trade restriction on employment.” They could also decide to promote the use of standard safeguard provisions in lieu of anti-dumping laws, as well as accelerate progress on the Doha Round, including though “producing new working texts on the special safeguard mechanism, sectoral negotiations and cotton.”

Leaving aside the broader economic stimulus packages adopted by numerous governments (see page 3 for Buy America provisions in the US), below is a very partial sampler of measures - compiled from a variety of sources - that have raised concerns over protectionism, although many do not breach international trade rules:

Auto sector bailouts: Chrysler and General Motors have received US$17.4 in government loans and asked for a further US$22 billion. US auto industry suppliers have been pledged US$5 billion in guarantees of receivables. France is lending -3 billion (about US$4 billion) each to Renault and Peugeot. Italy, Germany, Spain, Sweden and the UK have promised government aid ranging from -1.2 billion to -4 billion.

Tariff increases: Ecuador has raised tariffs on 940 products including foodstuffs, appliances and transport equipment. India has increased tariffs on some steel products, and Russia has hiked import duties on used cars, as well as raised its rice tariff to -160 per tonne from 15 February to 15 May. On 19 March, Mexico announced a 10- to 45-percent increase on some 90 US agricultural and manufactured products after the US cancelled a pilot programme that allowed a limited number of Mexican trucks to deliver cargo to the United States.

Non-tariff barriers: Indonesia has limited the number of ports and airports serving as entry points for certain imports, such as electronics, garments, toys, footwear, and food and beverages. Argentina has imposed licensing requirements on goods ranging from auto parts, textiles and TVs to toys, shoes and leather goods.

Import bans: Citing public safety concerns, India has banned Chinese toy imports for six months. China has prohibited imports of Irish pork, as well as a rejected some Belgian chocolate, Italian brandy, British sauce, Dutch eggs and Spanish dairy products.

Anti-dumping actions: The European Union has imposed anti-dumping duties on Chinese screws, fasteners, candles and steel wire products, as well as US biodiesel (see page 19). Export subsidies have been reinstated on dairy produce.

Labour-related measures: Malaysia has prohibited factories, stores and restaurants from hiring foreign workers. The French, Italian and Spanish auto bailout packages are thought to be conditional on the maintenance of domestic jobs to detriment of production in other EU countries, although such suspicions have not been confirmed by the European Commission. India has vehemently protested President Obama’s decision to exclude from stimulus tax breaks those US companies that move jobs overseas.

Currency devaluation: After the central bank of South Korea allowed the won to depreciate by 19 percent against the US dollar, India, Malaysia and Taiwan abandoned a six-month effort to shore up their currencies. Armenia and Kazakhstan have devalued their currencies against the dollar by 22 and 18 percent respectively. The Swiss national bank said on 12

March it would intervene in currency markets to prevent the franc from appreciating further against the euro.

Writing in the International Viewpoint, Jim Porter argued that the looming war of exchange rates, could “strongly contribute to the burial of the declarations of co-operation of the G-20.” The governor of China’s central bank Zhou Xiaochuan has suggested replacing the dollar as the world’s reserve currency by the IMF’s Special Drawing Rights.

Prior to the 2 April G-20 meeting, Mr Lamy was expected to release his second report on trade measures taken by the WTO membership since September 2008. The first such report, issued in January, found ‘limited evidence’ of protectionism, but lacked detail. The second edition is to ‘name and shame’ countries resorting to trade restrictions, although many such measures are likely to comply with the letter, if not the spirit, of WTO rules.