Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Is protectionism in global trade rising and also eroding global business? The answer is 'yes', as per the head of the World Trade Organization (WTO). Last week, she told BBC: "We are seeing increasing protectionism, some undermining of the WTO rules, and some of this is leading to fragmentation." Dr Ngozi Okonjo-Iweala, the director general of the WTO, also added that global trade is part of the lifeblood of making countries resilient and underpinning growth.
Though the outcome of free trade is still a matter of debate for some, there is a consensus that trade protection tends to lower national welfare by taxing consumers and, reducing potential gains from output efficiency and expanding export-oriented industries. On the other hand, trade liberalisation opens up the economy and enhances investment, exports and employment. Most economists and trade experts argue that despite the lack of evidence supporting trade protection, it continues to persist due to the political economy of different countries. Moreover, there is an argument for supporting domestic workers by protecting their jobs from import competition.
It leads to import restriction which is the central pillar of protectionist economic policy that any government uses to cut or bar international trade to help domestic industries. Two main tools of import restriction are tariff and non-tariff barriers (NTBs). Quota and product standards are two core NTBs, although the standard is largely used to ensure the quality of goods and so, in many cases, considered as non-tariff measures (NTMs). To be exact, generally, NTM is used for the country that imposes it and NTB is for the country that faces it while exporting.
Thirty years after establishing the WTO as a successor of the General Agreement on Tariffs and Trade (GATT) to boost rule-based free trade, the rise in trade constraining steps is not welcome. It is, however, a reality due to complex geo-political tensions and conflicts. Moreover, the recent wave of protectionism needs to be reviewed with some caution as the latest Trade Monitoring Update of the WTO, released last week, provides a slightly different scenario.
The report, covering the period between mid-October 2023 and mid-May 2024, showed that member countries of the WTO initiated some 99 trade-restricting measures on goods, most of which were on the import side. The initiation of new export restrictions declined significantly during the review period. A reverse trend was also observed between 2021 and 2023, as new import bars outpaced the number of new export restrictions.
At the same time, the number of trade-facilitating measures, import-facilitating measures to be precise, stood at 169, showing that countries continue to introduce more trade-facilitating measures than trade-restricting ones. In total, 473 trade measures on goods were recorded during the review in question, which also includes 172 trade remedy initiations and 33 trade remedy terminations.
The WTO report has some limitations, such as non-reporting and under-reporting by some member countries regarding trade-related measures and ambiguities in defining trade-restrictive measures. The report divides various trade measures into three parts: trade remedy, facilitating, and others. The third one or other measures are considered trade-restricting steps with some ambiguities. The report mentioned that the characterisation of a trade measure as restrictive must be considered with additional care and nuance. "For instance, some measures may have been introduced in direct response to actions taken by others. Some argue that it is important to take a more holistic view of the reasons behind the implementation of certain trade measures," it added.
Despite some limitations, it is the only global report providing updated information on the movement of various measures facilitating, correcting and blocking international trade. Quantifying the measures in terms of value may provide a better understanding of the trend. For instance, trade coverage of the import-facilitating measures introduced during the six-month review period was estimated at US$1,152.2 billion against $955 billion in the last annual report that covers 12 months (mid-October 2022 to mid-October 2023). In other words, countries have intensified their efforts to ease trade. At the same time, trade coverage of the import-facilitating measures stood at $248 billion against $178 billion last year. It means the move to reduce imports by some countries has increased significantly in the previous six months.
Reviewing the decade-long trend of these trade measures may reveal a wider picture. The annual version of the monitoring report, released in November last, revealed that the import restrictions implemented since 2009 continue to increase. In 2023, the trade covered by import restrictions in force was estimated at US$2,480 billion, representing almost one-tenth of total world imports of goods.
Identifying import restrictions as protectionism is not always straightforward. For instance, if a country restricts the import of a harmful product, it may not be considered protectionism, even if it has local manufacturers of the item. The reasons behind import restrictions are diverse and it is crucial to examine the ultimate goal or intention of such measures.
That's why, the Financial Times (FT) in an editorial three months ago said: "Fears of destructive protectionism are overdone." (April 29, 2024) It acknowledged that without a strong legal framework, conditions for a surge of government interventionism with protectionist elements remain in place. "But there have been so many false alarms over the decades that the onus is on the worriers to show that this time is different and that globalisation is in serious trouble," it added. "So far, there does not seem to be truly compelling evidence that it is."
In other words, though trade restriction is generally undesirable, in some cases, it is not possible to avoid, and some countries also exploit the limitations to impose import-restricting measures.