CIAO DATE: 12/03

Wanted: Jubilee 2010 against Protectionism

Jagdish Bhagwati and Arvind Panagariya

On The Issues

December 2001

American Enterprise Institute for Public Policy Research

To lower trade protectionism by rich countries, the WTO should harness the energies of civil society groups, particularly church groups. A simultaneous focus on reducing protectionism in poor countries—for their own good—should accompany such actions.

That the rich countries have not fully dismantled their tariff barriers and that this hurts not only themselves but also the poorest among the poor countries (particularly in the case of labor-intensive industries) has been known, and the situation condemned by trade economists, for at least a quarter of a century.

The recent castigation of rich-country protectionism by the heads of international agencies and in the media, while welcome, is therefore little more than a reiteration of the obvious. But unaccompanied by a simultaneous focus on the protectionism of the poor countries, it has led to an encouragement of a number of fallacies that pose a serious threat to the making of good trade policy in the poor countries. It also raises the important question: What can we do to effectively begin to dismantle this protectionism?

In this piece, we first proceed to discuss the more serious fallacies that we have witnessed in the sentiments and positions articulated recently by many antitrade activists, nongovernmental-organization (NGO) leaders, and poor-country politicians at forums such as the Davos meetings in February 2001. We then discuss possible ways to dismantle the rich-country protectionism, advancing the suggestion that we mobilize NGOs, especially church groups, in a jubilee movement toward that purpose.

 

Fallacies

Fallacy 1: Rich-country protection is higher than poor-country protection. Many poor-country politicians have exploited the focus on rich countries' protectionism to say that the world trading system is asymmetrical in trade barriers and hence "unfair" to them. This is meant to add poignancy to their frequent complaint that the Uruguay Round had also been "unfair" in having collected more concessions from the poor than from the rich countries.

But if one examines the tariff barriers in the rich and the poor countries today, it is still true that, on the average, the poor countries have higher protection than the rich countries. This is evident from figure 1, which draws upon work by J. Michael Finger and Ludger Schuknecht ¹ and which shows the tariff rates for both groups of countries, for different sectors and generally, still to be higher for the poor countries. Thus, in industrial products, the rich-country tariffs are at 3 percent compared to 13 percent for the poor countries. Even in textiles and clothing the poor-country tariffs at 21 percent exceed the rich-country tariffs at 8 percent.

To be sure, not all developing countries are equally protectionist or even more protectionist than developed countries. For many years now, Singapore and Hong Kong have been textbook examples of free-trading nations. Likewise, protection levels in the middle-income countries such as the Republic of Korea and Taiwan are not markedly higher than in developed countries. But the countries that stand to benefit most from competition are precisely the ones that have the highest protection. These include most countries in South Asia and Africa, which have average tariff levels that are markedly higher than the average for all developing countries and for developed countries.

What if one looks at the peaks in tariffs in the developed countries? Sure enough, they are concentrated against the exports of poor countries, applying with potency to products such as textiles and clothing, footwear and fisheries. But none of this is significant enough to reverse the observation that overall protection in developing countries exceeds the level of protection faced by them in the markets of countries belonging to the Organization for Economic Cooperation and Development. Indeed, as Finger and Schuknecht document, substantial protection against the exports of developing countries is concentrated in developing countries themselves. To quote them, "Biases against developing country exports are in developing economies' tariffs as much as in the developed economies' tariffs."

If we look at nontariff barriers, particularly antidumping actions, the developing countries have been setting up antidumping procedures and rapidly catching up to the rich-country practices and excesses to the point where the number of such protectionist actions has converged. Thus, economists J. Michael Finger, Francis Ng, and Sonam Wangchuk have found (figure 2) that, from 1995 through 1999, the rich countries initiated 463 antidumping actions, whereas the poor countries started 566. ² It is therefore simply wrong to say that the trade barriers are asymmetrically stacked against the poor countries; the truth is the other way around.

Fallacy 2: Trade barriers against the poor countries reflect wickedness or hypocrisy on the part of the rich countries. This is a sentiment voiced by many pro-poor-country NGOs. It derives support from the virtually exclusive focus on rich-country protectionism as distinct from the protectionism of the poor countries themselves. But as soon as the latter is recognized, a more prosaic explanation of rich country protectionism than wickedness is at hand.

The persistent presence (despite the huge postwar liberalization of trade by the rich countries) of protection against the labor-intensive exports of the poor countries, chiefly in textiles, footwear, and agriculture, is to be put down, in principal part, to the fact that trade liberalization has usually occurred in the context of reciprocal reductions of trade barriers. As long as the poor countries received most-favored-nation benefits at GATT rounds of trade liberalization, and were exempted from having to make any trade concessions just because they were "underdeveloped," the rich countries proceeded to make tariff reductions in commodities that were of interest only to themselves. By refusing to play with concessions of their own, the poor countries also gained few concessions for their own exports. If you insist on having a free supper, you cannot expect to eat at a banquet.

Fallacy 3: It is wrong to ask the poor countries to free their trade barriers when there are trade barriers in the rich countries. ³ This is an elementary economics error. As Joan Robinson famously said once, if other nations have rocky coasts, that is no reason to put rocks in your own harbors. It may sound "fair" to do so, but it is downright silly to do it. And as many Western NGOs and some church groups that often argue this fail to understand, it also does the poor nations no good.

Fallacy 4: Exports from poor countries fail to grow because of protection in the rich countries. A small yes but a big no. Even as rich-country protection is properly condemned, it is necessary to tell the poor countries simultaneously that their own protectionism is often the chief culprit in their dismal export and economic performance.

Thus, the outward-oriented Far Eastern economies, which either pursued free-trade policies (Hong Kong and Singapore) or offset the antitrade bias of their protection through export subsidies (Republic of Korea and Taiwan) managed to register a huge export performance whereas protectionist countries like India hurt their own export, and hence economic, performance. But both sets of countries faced virtually the same trade protectionism abroad! The postwar experience underlines strongly the proposition that export pessimism is self-fulfilling whereas those who set their policies to exploit foreign markets have usually found it possible to do so despite protectionism abroad.

Tackling Protectionism: A New Round and Jubilee 2010

While these fallacies, fatal to the economic health of the poor countries, can be summarily refuted, the question remains: What can we do in place of endless exhortations to reduce rich-country protection?

Evidently, the Uruguay Round Agreement, under which the ever-elusive Multifiber Arrangement was finally nullified, underlines the importance of multilateral trade negotiations toward this end. Hence, the establishment this month of the Doha Development Agenda at the ministerial meeting of the World Trade Organization in Qatar is welcome.

But we could also harness the energies and sentiments of civil society groups, including church groups in particular, to eliminate rather than support such protectionism. At Seattle and elsewhere, the church groups have marched alongside protectionists, identifying themselves wholly with our workers, seeking to shield them from international competition. But they forget that, as custodians of both this world and the next, they should also be custodians of not just the First but also the Third World.

Surely, one can expect them, of all activist groups, to favor policies that take the welfare of both domestic and (the far poorer) foreign workers into account. This requires that the church groups put their weight behind the dismantling of our protection, but at a pace and with institutional support for adjustment and retraining that are compatible with a humane concern for our workers.

Is it too much to expect that, just as the Jubilee 2000 movement achieved what many exhortations to give debt relief had not, we now have a church-led movement, a Jubilee 2010, to do the same for freeing us from rich-country protectionism?

Endnotes

Note 1: J. Michael Finger and Ludger Schuknecht, "Market Access Advances and Retreats: The Uruguay Round and Beyond," World Bank Working Paper 2232, November 1999. Back

Note 2: J. Michael Finger, Francis Ng, and Sonam Wangchuk, "Antidumping as Safeguard Policy." Paper presented at the conference "Issues and Options for the Multilateral, Regional, and Bilateral Trade Policies of the United States and Japan," University of Michigan, Gerald R. Ford School of Public Policy, October 5&-;6, 2000. Back

Note 3: Thus, at a conference in New Delhi, Nicholas Stern, chief economist of the World Bank, was reported as having said, "It is surely hypocritical of rich countries to encourage poor nations to liberalize trade and to tackle the associated problems of adjustment, whilst at the same time succumbing to powerful groups in their own countries that seek to perpetuate narrow self-interest." Back

Jagdish Bhagwati is the University Professor at Columbia University and the Andre Meyer Senior Fellow in International Economics at the Council on Foreign Relations. Arvind Panagariya is a professor of economics and codirector of the Center for International Economics at the University of Maryland.