Africa resists the protectionist temptation: The fifth Global Trade Alert report

Simon J Evenett 28 May 2010

a

A

Economic growth in many industrialised economies returned in either late 2009 or the first half of 2010 accompanying sustained expansions in emerging market economies (IMF 2010). This growth brought hope that protectionist pressures would ease in the world economy through 2010. If anything, the period since our last report was published in January 2010, has been one of the busiest for the Global Trade Alert team.

Nothing short of a mountain of evidence has been uncovered in recent months concerning state measures announced after the start of our reporting window, November 2008 (corresponding to the date of the first crisis-related G20 summit held in Washington DC). A total of 247 new reports on implemented or announced and pending state measures have been added to the Global Trade Alert (GTA) database since our last report was published, expanding the total number of reports to 960. This 40% expansion in the GTA's database provides for a more comprehensive assessment of contemporary protectionism and, as will become clear, some of our previous findings have had to be revised accordingly.

The purpose of the fifth report of the Global Trade Alert is to provide an overview of the state measures taken during the current global economic downturn and nascent recovery that might affect international commerce. The principal findings of the report are summarised below.

Like our two previous reports, the fifth report also has a regional focus. This time our focus is on sub-Saharan Africa, whose development significance is evident. What may be less well known is that sub-Saharan African governments have not resorted to protectionism on the scale of industrialised countries and some developing country peers during the recent global economic downturn (see Figure 1). Indeed, the contest for foreign direct investment appears to be in full swing in sub-Saharan Africa, with governments making repeated changes to tax, investment, and other policies to lure foreign firms to establish facilities.1

Sub-Saharan Africa is also the recipient of preferential access to the markets of many industrialised countries. This report contains two papers on the likely reforms to the US and EU trade preference regimes and their potential implications for sub-Saharan Africa. These papers will therefore also be of interest to those following the West's policies towards sub-Saharan Africa.

Principal findings of the fifth GTA report concerning crisis-era protectionism

The substantial expansion in the GTA's database permitted a re-evaluation of the key aspects of crisis-era protectionism. Below is our latest assessment of these dynamics.

  1. Since the first G20 crisis-related summit in November 2008, the governments of world have together implemented 496 beggar-thy-neighbour policy measures – that is, more than one for every working day. If we add in another 86 implemented measures that are likely to have harmed some foreign commercial interests, the total reaches 582 – that is, more than one for every actual day since the first G20 summit in November 2008.
    • Of those 247 new entries in the Global Trade Alert, 131 government measures been implemented that almost certainly discriminated against foreign commercial interests. The total number of implemented (almost) discriminatory measures in the Global Trade Alert database then rose to 496 measures, just over half of the total number of reports (960).
    • Since our last report was published in January 2010, the number of beggar-thy-neighbour measures reported (131) was less than three times the number of benign or liberalising measures reported (53). This ratio was considerably more favourable to market opening than in the previous GTA reports – and as such constitutes some good news.
  2. Since the first G20 crisis-summit, bailouts and state aids are the most frequent source of discrimination against other nations' commercial interests. Thirty-one percent of all discriminatory measures were bailouts. By now 96 of the 166 discriminatory state aid/bail out measures in the Global Trade Alert database are in sectors other than the financial sector – many governments have taken the opportunity of the crisis to bail out manufacturers and farmers.
  3. Although there are a lot of anti-dumping, anti-subsidy and safeguard measures in the pipeline, they still account for only 99 of the 496 harmful measures implemented since November 2008. The large numbers of discriminatory measures reported in the Global Trade Alert database are therefore not driven by so-called “unfair” trade actions.
  4. Relatively speaking, tariff measures – the trade barrier most associated with the 1930s – continue to decline further in numerical importance. Tariff increases account for only one in eight of the total number of discriminatory measures imposed in the current global economic downturn.
  5. No doubt to the embarrassment of those who systematically talked down the incidence of protectionism during 2009, the evidence continues to mount as to the extent to which governments discriminated against foreign commercial interests.
    • Since our last report was compiled the GTA team has found evidence of more harmful state measures that were imposed in the last quarter of 2008 and the first half of 2009. This evidence forces us to revise upward by approximately 10% the number of beggar-thy-neighbour measures imposed in the first six months of 2009, to at least 115 measures per quarter.
  6. By May 2010, no four-digit product line, no UN classified economic sector, and no jurisdiction has emerged unscathed by crisis-era protectionism.
  7. Since November 2008 China's commercial interests have been hit 221 times by protectionist measures. Only if the 27 members of the EU are counted together, does any other jurisdiction come close to absorbing comparable harm – the EU 27 group being hit 206 times.
    •  There have been substantial increases in the number of times certain jurisdictions' commercial interests have been harmed since the last GTA report was published in January 2010. China has been hit by 60 more measures (the most again), followed by the EU 27 (53 more adverse measures) and the US (38 more hits).
  8. Despite taking their no-protectionism pledge, the G20 members have imposed 316 beggar-thy-neighbour policies since November 2008. Since our last report was published in January 2010, a total of 96 more discriminatory measures implemented by G20 countries have been discovered, representing a 40% increase at least.
    • The G20 countries also implemented 81 of the 107 benign or liberalising measures recorded in the GTA database. To their credit, 33 of the 41 benign or liberalising measures discovered since the last GTA report was published were implemented by G20 countries.
  9. Unlike recent GTA reports, by May 2010 it was no longer the case that the Russian Federation was in the top 5 offending nations on all four criteria (number of harmful measures implemented, tariff lines affected, sectors affected, or trading partners affected). Now, taken together, the EU 27 has this dubious distinction. See Table 1 below.
    • On all four metrics, Argentina, China, Indonesia, and Russian Federation are always in the top 10 worst offending nations.
    • The Russian Federation has the dubious distinction of raising trade barriers against the most tariff lines (40% of all product categories.) Still, Algeria takes the prize for measures that harm foreign commercial interests in the largest number of economic sectors; Indonesia for harming the most trading partners (165).
    • When nations are ranked by the number of trading partners their state measures have harmed, every one of the top-10 worst offenders has hurt the commercial interests of over 120 nations.
  10. In the last GTA report it was stated that only five jurisdictions had taken discriminatory measures that affected more than a quarter of all the possible traded product categories – that number has now risen to nine.2 Still, only six (or five if one does not count the EU 27 as a group) jurisdictions have taken measures that affect more than a third of all possible product categories. The latter demonstrates that the across-the-board measures seen in the 1930s have not been repeated in the recent global economic downturn.
  11. Our expansion of the database confirms one long-standing GTA finding: Despite all the talk about measures to bolster green industries, innovation, and future growth poles of the economy, the great majority of the discrimination is in favour of domestic firms is in smokestack, declining industries, and in agriculture.
  12. In January 2010 the GTA reported there were 188 suspicious protectionist measures in the pipeline3; by May 2010 that total has risen to 237. As in our previous reports, if every one of these measures were eventually implemented it would be equivalent just under half a year's more protectionism.

Table 1. Which countries have inflicted the most harm?

Rank
Metric, Country in specified rank, Number
Ranked by number of (almost certainly) discriminatory measures imposed
Ranked by the number of tariff lines (product categories) affected by (almost certainly) discriminatory measures
Ranked by the number of sectors affected by (almost certainly) discriminatory measures
Ranked by the number of trading partners affected by (almost certainly) discriminatory measures
1.       
EU 27* (140)
Russian
Federation (487)
Algeria (54)
Indonesia (165)
2.       
Russian Federation (48)
Brazil (440)
EU 27 (52)
EU 27 (163)
3.       
Argentina (37)
Ukraine (389)
Indonesia (31)
China (152)
4.       
Germany (28)
EU 27 (371)
Ecuador (30)
Argentina (145)
5.       
India (27)
Indonesia (346)
China (26)
India (144)
6.       
UK (22)
China (335)
Russian Federation (25)
Russian Federation (137)
7.       
Indonesia (20)
Ecuador (316)
Mexico (24)
Belgium (132)
8.       
China (19)
Argentina (299)
Argentina
Belarus (23)
Belgium
UK (128)
9.       
Italy (18)
India (282)
Germany (124)
10. 
Austria (17)
Belgium (203)
France (121)

* 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. The EU 27 refers to the sum of all of the measures taken by the 27 national governments of the EU and the measures taken by the European Commission. To be included in this total a state measure must have involved discrimination against the commercial interests of another state, including potentially another member of the EU.

References

IMF (2010), “World Economic Outlook: Rebalancing Growth”, April.

GTA (2010), “The fifth Global Trade Alert report”, May.
 


1 Some of the best evidence for this sustained policy of openness can be found in the budget speeches of various finance ministers from sub-Saharan Africa over the past two years.

2 The Russian Federation, Brazil, Ukraine, EU 27, Indonesia, China, Ecuador, Argentina, and India. See Table 2.5 in Chapter 2 for more details.

3 For the purposes of this report (and the last one) the protectionist pipeline is said to include all those state measures that (i) have been publicly announced, (ii) that have yet to be implemented and (iii) upon examination are likely to harm foreign commercial interests. Such measures are classified amber in the GTA database until implemented, whereupon their classification may change (depending on the details about the potential discriminatory impact available at the time of implementation.)

a

A

Topics:  Global crisis International trade

Tags:  global crisis, protectionism, Global Trade Alert

Professor of International Trade, University of St. Gallen, Co-Director of the CEPR Programme in International Trade and Regional Economics.