Africa has resisted protectionism – why can’t the EU?

<p><em>Viv Davies interviews Simon Evenett for Vox<br />
</em></p>
<p><em>June 2010<br />
</em></p>
<p><em>Transcription of an VoxEU audio interview [http://www.voxeu.org/index.php?q=node/5233]</em></p>
<p><strong>Viv Davis:</strong> Hello and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I'm Viv Davis from the Center for Economic Policy Research. I'm talking today to Professor Simon Evenett of St. Gallen University about the latest report produced by Global Trade Alert, an independent trade monitoring initiative led by Professor Evenett and coordinated by CEPR. The report is titled &quot;Africa Resists the Protectionist Temptation: The Fifth Global Trade Alert Report&quot;. I began by asking Simon to outline the main findings of the report.</p>
<p><strong>Simon Evenett:</strong> The fifth report includes both a global overview as well a special focus on Sub Saharan Africa. The global overview demonstrates that countries are continuing to close borders as well as to discriminate against foreign commercial interests throughout the beginning of this year. The so called recovery in the national economies hasn't really affected that trend very much. We've seen very little change in behavior from the early part of this year compared to what we saw in 2009. Having said that, one piece of silver lining is that the number of liberalizing measures which governments are putting in place has risen of the share of total measures. But there's still massively outnumbered by the number of discriminatory measures.</p>
<p>So those are the findings at a global level. I'm afraid not much good news there. But still, it's part of our monitoring job to identify what is actually happening on the ground.</p>
<p>With respect to Africa, we do have some good news. We've found consistently throughout our monitoring period, that Sub Sahara African governments with the exception of South Africa and Nigeria have been undertaking far more liberalization than other parts of the world. We see governments liberalizing foreign direct investment regimes, lowering tariffs on parts and components, and generally improving the business environment in a way which benefits both domestic as well as foreign firms.</p>
<p>We've seen lots of evidence in the budgets of these countries to show the governments are consistently pursuing the strategy of trying to attract foreign ranks investment and investors. That does not appear to have changed because of the crisis.</p>
<p><strong>Viv: </strong>So what you're saying, Simon... And from what I've read of the report, it appears, for example, that the European Union, unlike Africa, which has resisted the temptations of protectionism, is now in the top five offending nations on all of the global trade alert criteria. So what does that say about the EU and its commitment to trade openness?</p>
<p><strong>Simon: </strong>Well, you're right. In our global overview, we rank countries according to the extent to which they have closed their markets or discriminated against foreigners. Our last four rankings, the EU member states taken together are the worst performers. Now, I should stress here that discriminatory measures can be taken in EU by the European Commission and by the member states' governments. What we found is it's the member states' governments which have undertaken a lot of this discrimination. It's not Brussels.</p>
<p>So while it is the EU's record is not good, it's really a member states' problem. The question then arises, to what extent is there a mismatch between the European Commission's stated goals, for keeping European markets open to both the European and foreign producers, and the member states who are taking actions, often defensively in the short term, to try and look after certain domestic interests? This mismatch, I think, is becoming more and more glaring over time. I think it's something which needs to be resolved within Europe.</p>
<p><strong>Viv: </strong>The idea for global trade alert came about in response to the G 20 leaders' commitment to resist the temptation of protectionism and to prevent trade barriers from being erected. The initiative's been gathering data on discriminatory government measures for a year now. What are the overall findings? Are we seeing less protectionism now than a year ago? What would you say are the most common discriminatory measures that have been recorded?</p>
<p><strong>Simon: </strong>We're not seeing much less measures than we were a year ago. One of the things that makes it very difficult to interpret precisely what's going on is that there are substantial reporting lags in measures which are very un transparent. One of the key features of this crisis has been the resort by governments to murkier forms of protectionism . This often is harder for us to document. But still, we keep on this. What we've found over time is that we've had to keep systematically revising up, quarter by quarter, what we've found for each era.</p>
<p>It seems that in year 2009, approximately 100 to 120 discriminatory measures were put in place by governments every quarter. Very quickly, in 2010, we're converging to those numbers as well. So I don't see much of a change in pattern at all.</p>
<p>In fact, if anything, our view of 2009 is worse than what it was last year when we initially reported, because we didn't realize the significance of these reporting lags.</p>
<p>So overall, we would paint a much more sanguine or less optimistic picture about protectionism during this downturn than some others. I think it's important to appreciate the relevance these reporting lags, in an era when governments are tenacious about not using the most transparent forms of protectionism.</p>
<p><strong>Viv: </strong>What would you say are the most common discriminatory measures?</p>
<p><strong>Simon: </strong>Oh, that's right. You asked me about this. The most common forms of discrimination we've seen area the bailouts and subsidies by governments. Here I should stress that in the GTA's database, less than half of the bailouts were related to the financial sector. The governments have used this crisis to substantially subsidize agriculture and services and manufacturing. I should say, services other than financial services.</p>
<p>So this pattern of subsidization is a feature which is going to be an important matter as countries recover. Especially in a time when countries are worried about spending and budget deficits. One has to hope that that pressure to limit budget deficits will encourage governments to unwind these subsidies and restore the relative degree of competition in the markets which prevailed before the crisis.</p>
<p><strong>Viv: </strong>What would you say, Simon, to some critics who suggest that Global Trade Alert has been unnecessarily alarmist and has overplayed the extent of protectionist measures? And also that it's paid no attention whatsoever to a particular measure reported that may actually have been WTO consistent?</p>
<p><strong>Simon: </strong>Well with respect it the charge of alarmism, it's hard to know what that really means. It's not clear when one is being too alarmist or whether one is deliberately underplaying the facts, deliberately underplaying the degree of protectionism for some apparent commercial or bureaucratic interest. And so these metrics of being alarmist or too alarmist, or rather, the metrics associated with being alarmist or too alarmist are very unclear. It's easy to use as a label, very hard to pin down precisely where the borderline is. With respect to the WTO consistency measures, there's' an existing practice or procedure for dealing with this matter, which is the WTO's Dispute Settlement body. The GTA was not going to replicate that body's work. And indeed we will go further, we would say that the GTA by considering matters which are not in WTO agreements is going to consider policies and state initiatives which are broader and more far reaching and as a result WTO consistency doesn't arise in those cases.</p>
<p>So WTO consistency I don't think is a particularly compelling overall metric for examining the degree of discrimination during the crisis. It is valuable in helping ascertain whether countries stick to WTO agreements during the crisis.</p>
<p>But even then, sticking to the WTO agreements is not the only way of looking at how governments should behave in this crisis. Governments committed to openness should refrain from all forms of discrimination against foreign commercial interests whether or not they're covered by WTO agreements or not.</p>
<p><strong>Viv: </strong>What is it, Simon, about the Global Trade Alert that sets it apart from the monitoring initiatives that are currently being undertaken. For example, by the WTO or the OECD or the joint report that they produced?</p>
<p><strong>Simon: </strong>The differences are several. First, ours is an independent initiative, and so we are not responsible to member governments. And we therefore are not under any pressure or obligation to them. Secondly, the scope of our work is much broader. We look at all statements which are discriminatory. Including, for example, migration measures where you will not find that covered in the WTO's work for example.</p>
<p>And thirdly, we have kept up to date our records, and we update them over time, and we accumulate those records over time as well. So users of the GTA database and the Global Trade Alert.org website can actually track the substantial impact on their sector or country's commercial interests in ways far easier than any of the reports put out by other bodies.</p>
<p>In short, we have advantages in terms of independence, scope as well as utility for users.</p>
<p><strong>Viv: </strong>Looking at the type of protectionism measures that have been, or are in the process of being put in place, to what degree do you think these are temporary? Or are we looking at a potentially long term trend here that has implications that will be difficult to reverse?</p>
<p><strong>Simon: </strong>The mix of measures that we've seen in this last downturn vary or differ of course according to how easy they will be to reverse. You'll find that measures like trade defense, anti dumping, countervailing duties and the like have built in timetables in them at the WTO for reversal So those measures we can be sure will probably be reversed over a five years' time horizon, but perhaps not sooner. The other measures are that we've seen being put in place, like the bailouts and procurement measures tend to take much longer to reverse, much longer to reverse. And the experience there has not been positive. In some cases the discrimination has never been reversed. In the case of the Buy America provisions in the United States, rarely have we seen these been removed once they've been ratcheted up.</p>
<p>And so as a result we have to be very open to the possibility that there could be a long term sustained increase in discrimination in various aspects of international commerce as we go forward. And of course, this is on the one hand bad news, but on the other hand creates an opportunity for far sighted trade negotiators and governments to try and negotiate agreements which will help reduce and eliminate these forms of discrimination too.</p>
<p>So with every piece of bad news here is a diplomatic opportunity and we must hope hat the diplomats in Geneva will grasp that opportunity.</p>
<p><strong>Viv: </strong>And what about the future of GTA, where's it going next? Do you have any plans beyond continuing to monitor and gather data?</p>
<p><strong>Simon: </strong>We do have plans. We will continue to monitor state activities because the crisis is not over. There's still a risk of a double dip recession. And governments may find themselves short of resources as budgets become constrained and protectionism or other forms or measures, other regulatory measures which are one sided. So we'll stay in business for all those reasons. But we also want to stress in our second year more analysis of existing trade policy measures, trying to point out where there are sensible government measures and less sensible measures, what the costs of less sensible measures are. Trying to give governments a better sense of the ranking of measures, how to choose polices which entail the least possible harm. These are all important policy messages which we have to develop.</p>
<p>Furthermore, ideally there will be a lot more outreach to policy makers and to other trade policy analysts to discuss the implications of Global Trade Alert's findings and to think through what they mean for WTO accords, regional trading agreements and nation trade and development strategies.</p>
<p>So in short, I think an augmentation of our strategies would be ideal for the second year, adding to the monitoring substantial amounts of policy relevant analysis and interaction.</p>
<p><strong>Viv: </strong>OK. Thank you very much, Simon, It's been very interesting to talk to you and I wish you all the best with the future of GTA.</p>
<p><strong>Simon: </strong>Thanks, Viv.</p>