The G20's assault on world trade

Simon J. Evenett, VOX, 22 September 2009 (texto en ingles)

Since the Global Trade Alert (GTA) was launched on 8 June 2009, over 425 state initiatives have been investigated by our independent team of trade policy analysts. These initiatives vary from packages of wide-ranging public measures with many implications for trade and investment policy instruments to temporary tariff increases on single product lines. These investigations reveal the emerging contours of crisis-era protectionism and the fealty of G20 governments to their November 2008 no-protectionism pledge.

The protectionist juggernaut continues

One of the most important findings of the GTA's second report is that the protectionist juggernaut has not lost any of its momentum. In each quarter of 2009, governments implemented approximately 70 initiatives that containing measures that almost certainly discriminate against foreign commercial interests. Worldwide, of the 280 state initiatives implemented since November 2008, a total of 192 have tilted the playing field towards domestic commercial interests at the expense of foreigners or discriminated between foreigners. Another 48 are suspicious and likely discriminate against at least some foreign commercial interests.

It would be wrong, however, to believe that every government initiative investigated by Global Trade Alert was found to be protectionist. In 40 cases, the GTA team concluded that the initiative in question involved the implementation of state measures that either liberalised international commerce, improved transparency of a trade regime, or involved no change in the treatment of foreign firms. Many of the national budgets passed by Sub-Saharan African economies involved tariff cuts on imports of equipment, parts, and components. Furthermore, on 11 different occasions, governments have taken unilateral steps to loosen restrictions on foreign investors.

That said, the overwhelming picture is one of planned and implemented state initiatives that reduce foreign commercial opportunities and reverse the 25-year trend towards open borders. The GTA team estimates that, worldwide, the number of discriminatory measures being implemented outnumbers the liberalising measures by five to one.

Worse, there is plenty more protectionism in the pipeline. GTA also tracks measures that have been announced but not yet implemented. Of the 140 such measures, 134 will almost certainly discriminate against foreign commercial interests when implemented. Thus another six months’ worth of measures that discriminate against foreign commerce hang over the world economy.

Taken together, these findings imply that any notion that protectionism is abating should be set to one side. Whatever factors are driving the adoption of discriminatory state initiatives appear to be entrenched, and this calls for continued vigilance by, and peer pressure on, governments.

The serial violation of the G20 pledge

Perhaps one of the most depressing findings in Global Trade Alert's second report relates to the scale of the G20 members' violation of their pledge to eschew protectionism. These nations are responsible for implementing 172 of the state initiatives that have been investigated and reported in the GTA database. Of those initiatives, 121 were found to tilt the playing field against foreign commercial interests. Only 23 of those discriminatory measures related to the imposition of duties following anti-dumping, countervailing duties, and safeguards investigations, implying that resort to other means to close borders has been widespread.

Given that there have been approximately 300 days since the first crisis-related G20 summit in Washington DC, these findings imply that, on average, a G20 member has broken the no-protectionism pledge every three days. No other statistic in this report better demonstrates the paucity of global leadership on contemporary protectionism.

In the run up to the Pittsburgh summit, the map below may be of particular interest. It demonstrates the almost-global reach of the harm done when G20 governments thought it wise to violate their own no-protectionism pledge. No one can claim that the G20 members have confined their damage to themselves.

Figure 1. Number of times each jurisdiction has been hit by discriminatory measures taken by G20 governments

Because protectionist acts can affect different numbers of products, sectors, and trading partners, there is no single metric to identify the worst offending nations. Still, whether measured by number of harmful measures implemented, tariff lines affected, sectors affected, or trading partners affected, Indonesia is always in the five worst offending nations – and Indonesia is a G20 member to boot! Moreover, on all four metrics, China and Russia are always in the top 10 worst offending nations. And, for three of the four indicators of harm, Germany and India are amongst the ten worst offending nations.

The Ukraine has the dubious distinction of raising trade barriers against the most tariff lines (60% of all product categories.) Algeria takes the prize for affecting the most economic sectors; China for harming the most trading partners (163). The commerce-restricting measures of ten nations, including six industrialised countries (UK, US, Germany, Spain, France, and Poland), are estimated conservatively to have each harmed 100 or more of their trading partners.

Of the 18 nations in our four rankings of the ten worst offenders, 12 took the G20 members no-protectionism pledge (Russia, Germany, India, Indonesia, Italy, UK, China, Argentina, Japan, US, Mexico, and France.) This indicates the full scale of the G20's assault on world trade.

Table 1. Which countries have inflicted the most harm by imposing (almost certainly) discriminatory measures?

Note: There is no single metric to evaluate harm. Different policy measures affect different numbers of products, economic sectors, and trading partners. GTA reports four measures of harm.

Source: Broken Promises: A Pre G20 Summit Report by Global Trade Alert.

Policy recommendations for the G20 leaders' summit

The very fact that the protectionist juggernaut is still in full swing, that its pain is being felt across large sections of the world economy, and that G20 countries provide much of its momentum calls for trade policy to take its rightful place at the heart of the G20 agenda in Pittsburgh. Rather than issue another injunction to (their own!) trade ministers to complete the Doha Round at some point in the future, G20 leaders should take steps to address the protectionist dynamics underway right now. Attention should be given to two initiatives.

First, drain the protectionist pipeline – and don't refill it. Each G20 member should commit to publish and then review all of its major economic initiatives planned for the next 12 months. Outright discriminatory objectives should be disavowed. When a planned initiative's objective is benign, the G20 member responsible for it should verify publicly that the means chosen to attain the goals in question do so at the least possible cost to trading partners.

Second, review and unwind trade-distorting measures identified by major monitoring initiatives. Each G20 member should undertake a review every six months of each of the major crisis-related economic and financial programmes and trade policy initiatives implemented since the first G20 summit. Each review would:

- establish whether the initiative in question is still needed;

- establish whether all of the measures taken are necessary to attain the goals of the initiative;

- ascertain whether the measures can be replaced by other measures that attain the same goals but at lower cost to trading partners;

- be based on international best practices, where available;

- be evidence-based and reasoned;

- be made public on the G20 website.

Each review of a public initiative would result in a determination to either phase-out the initiative, retain the initiative in its current form (having demonstrated that its goals can be met at least cost with the current measures), or retain the initiative but replace excessively trade-distorting means with less-distorting ones. Such reviews would encourage evidence-based, transparent assessments of state initiatives that may have been put conceived of, and initially executed, in a fevered national policymaking process. In this manner the process of unwinding some of the crisis-related harm would begin providing, in turn, much needed lifts to trading partners and ultimately to the world economy.