Restrictive trade practices
Visualization of narrower problems
Name(s):
Unfair trade practices
Protectionism in international trade
Defensive trade measures
Economic nationalism
International trade barriers
National trade protectionism
Discriminatory trade restrictions
Nature
Trade protectionism is the result of governments acting to save certain sectors of their economies from foreign competition. The impact of this on the fledgling industries is considerable but they are in no position to retaliate. Protectionist policies have also been directed by developed countries against each other, but this is usually carefully negotiated to avoid retaliation.
Background
In recessionary environments, the manufactured exports of developing countries have encountered heightened protectionist barriers, especially of the non-tariff kind, which have further exacerbated the ability of these countries to service and repay debt incurred at a time of brighter prospects for growth in world trade. There has been a pronounced movement away from the development consensus embodied, for example, in the Generalized System of Preferences, which was pioneered at UNCTAD II in New Delhi in 1968. The non-reciprocal non-discriminatory concessions extended under the GSP are being gradually withdrawn and to a large extent offset by discriminatory measures against developing countries' exports. Hence developing countries which in the period 1973-1981 were the most dynamic partners in the world exchange of goods, both as exporters and importers, are unable to make an effective contribution to the recovery of world trade, precisely at a time when such a contribution is most required. By September 1988 it was estimated that about 50% of world trade is affected by protectionist measures which assume the forms of voluntary export constraints, anti-dumping measures and all kinds of administrative procedures and obstacles.
Incidence
Increased unemployment in industrialized countries has encouraged protection against labour-intensive imports from developing countries, especially traditional products. Increased protectionism has had a direct influence on the growth performance of developing countries by lowering the demand for their exports and exerting a downward pressure on export prices and earnings. It has also hampered efforts in developing countries to diversify away from traditional products. The total exports of developing to developed market-economy countries declined by about one fifth between 1981 and 1985.
As in developed-market economy countries, protection in developing countries has involved efficiency losses in those cases in which it has been excessive. In a recent study estimates that trade and technical barriers within the European Community were costing community industries Ecu 120 billion per year. In the USA it has been found that a permanent policy of tariff protection would cost, per job, 14 times more than it would provide in private benefit to the individual worker; it would cost US$ 1 for every 7 cents gained by workers whose jobs were preserved. In Canada, the ratio was 70 to 1; for every 1.5 cents by which the worker would be better off, one Canadian dollar would be wasted.
Claim
1. Rather than fighting protectionism, nations have accommodated and institutionalized it, disguising new barriers in such euphemisms as "bilateralism" and "managed trade". Under such agreements countries agree to open their markets to limited quantities of one other's products and exclude those from all other countries.
2. If developing countries are to reconcile a need for rapid export growth with a need to conserve the resource base, it is imperative that they achieve access to the markets of industrialized countries in the case of those non-traditional exports where they have a comparative advantage.
3. The cost of maintaining trade barriers is paid by the consumer through taxes which are used for subsidies to domestic industries, higher prices of domestic and uncompetitive goods and services and additional taxes to pay for expenditures by government to administer the barriers. The cost of protecting agriculture can be very high: in the USA 3% of total farm input and 16% in the EEC/EU. Non-tariff barriers such as Voluntary Export Restraints (VER) can cost to the importing country three times as much as equivalent tariff protection. Countries that do not protect home industries prosper because their more open markets draw in more and cheaper goods, keeping down inflation and interest rates. Their industries are toughened by having to meet global competition.
4. Protectionism leads to distortions in the structure of production, consumption and trade, and these are costly to economic growth. Many developed countries are willing to donate "humanitarian" aid to developing countries in need, but they refuse to allow the freedom for those same countries to become economically viable in their own right.
Counter-claim
1. Protectionist policies serve to protect the national interest of the countries using them. They allow domestic industries vital to national defence to continue to be viable in spite of being uncompetitive in the world market. They guard against being cut off by foreign suppliers by ensuring domestic production, [eg] the arms industry of South Africa. They protect the domestic economy against a negative balance of payments. Given the high numbers of unemployed in most industrialized countries today, why should they allow competition from non-industrialized countries to threaten their work forces, many of which, anyhow, are comprised of immigrant workers from the non-industrialized countries themselves.
3. The case against protection, in developing countries should be tempered by the fact that the motivations for protection in developing countries are quite different from those in industrialized countries. Broadly speaking, the adoption by developing countries of measures with the potential to restrict trade would appear to be designed to serve one or more of the following purposes: revenue collection, balance-of-payments protection, and infant-industry protection. To the extent that such infant-industries eventually become internationally competitive, such protection serves to effect structural change and not to arrest it, as is frequently the case with protection in industrialized countries from "market disruption". The structure of protection in developing countries tends not to be discriminatory, in contrast with those adopted by developed-market countries. Developing countries tend to be foreign exchange constrained and their import levels are typically determined by their export earnings rather than by their protective policies. Finally, unlike the developed market economies, there would appear not to have been any trend towards increased protection in recent years.
4. The problem with free trade is that the rich protect themselves by setting everyone else at each others' throats. The old dichotomy between free trade and protectionism is obsolete. A new route is needed for justice, equity and quality of life. The word "protect" should be reclaimed. There is nothing to be ashamed about protection. It depends on who is doing it and to what end.
Broader
Narrower
Reduces
Aggravates
Unproductive import substitution [in 5 loops]
Excessive external trade deficits [in 8 loops]
Restricted growth in export markets [in 12 loops]
Aggravated by
Strategy(ies)
Value(s)
Reference(s)
Type
(C) Cross-sectoral problems