Protectionism rises in response to pessimistic prospects for growth

Simon Evenett interviewed by Viv Davies, 22 July 2011

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<p><span class="Apple-style-span" style="border-collapse: collapse; color: rgb(17, 17, 17); font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 19px; -webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; ">
<p style="padding-top: 0px; padding-right: 0px; padding-bottom: 0.5em; padding-left: 0px; margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><em>Viv Davies interviews Simon J Evenett for Vox</em></p>
<p style="padding-top: 0px; padding-right: 0px; padding-bottom: 0.5em; padding-left: 0px; margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><em>July 2011</em></p>
<p style="padding-top: 0px; padding-right: 0px; padding-bottom: 0.5em; padding-left: 0px; margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><em>Transcription of a VoxEU audio interview []</em><b>&nbsp;</b></p>
<p><b>Viv Davies</b>: &nbsp;Hello, and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I'm Viv Davies from the Centre for Economic Policy Research. It's the 18th of July, 2011, and I'm in London talking to Professor Simon Evenett of St. Gallen University. We're discussing the 9th Global Trade Alert Report, titled <i>Resolve Falters as Global Prospects Worsen</i>.</p>
<p>Evidence presented in the report suggests that G20 government commitments to resist protectionism have wavered in light of pessimistic prospects for global growth. Professor Evenett describes what he calls &quot;murky protectionism&quot;, the impact of the crisis on the BRICs and the LDCs, and how WTO rules are being circumvented.</p>
<p>I began the interview by asking Simon to outline the main findings of the report.</p>
<p><b>Simon Evenett</b>: &nbsp;The 9th Report looks at the protectionism which has been put in place since the G20 Summit in November, 2010, and updates what we know has happened before that. There are two main findings. One, that there's been nearly two hundred protectionist measures put in place since the Seoul Summit. And this represents a substantial increase in the amount of protectionism which is still enforced in the global economy. Eighty percent of that protectionism has been put in place by the G20 countries, which somewhat goes against their pledge not to do this.</p>
<p>The second big finding is that the protectionism in 2010 which we'd thought was falling, and which our last report showed was falling, has actually turned out to be just as high, or possibly, as high at the end of the year, as it was at the beginning of the year. And this means then that 2010, I'm afraid, was much more protectionist than people thought at the time, and that protectionism is continuing in the global economy well beyond the 2009 peak that we saw.</p>
<p><b>Viv</b>: &nbsp;So, who's most responsible for the protectionist measures that we are seeing coming through now? Which countries? Are there particular countries which are worst offenders?</p>
<p><b>Simon</b>: &nbsp;There are some countries which have put in place a lot of protectionist measures, but as a group, as I said earlier, the G20 are by far the most culpable. And within them, you see the BRICs being responsible for a growing proportion of protectionist measures. But having said that, individual countries do stand out as being particularly aggressive. Russia, Argentina, are putting in place lots of measures. India has put in place a lot of measures recently. Indonesia, Korea and others have put in place measures. So overall, it's the larger countries which are seeking to protect and advance their commercial interests.</p>
<p><b>Viv</b>: &nbsp;And what kind of measures are we seeing put in place?</p>
<p><b>Simon</b>: &nbsp;More and more measures are of a form of murky protectionism, which is the less transparent types of protectionism. Export finance is a leading example. Migration measures are another big example from the last year. We've also seen a rise in the use of trade defence measures, and we have nearly two hundred trade defence investigations ongoing globally, which if they were implemented, would add substantially to the level of protectionism.</p>
<p><b>Viv</b>: &nbsp;And what about the BRICs? How are they being affected by the whole climate of protectionism?</p>
<p><b>Simon</b>: &nbsp;The BRICs are now the largest target of protectionism. We estimate between 55 and 60 percent of all measures worldwide target at least one BRIC. And so, they, I think, are very clearly affected by worldwide protectionism, and have a strong interest in making sure that the G20 limits the use of protectionism in the future.</p>
<p><b>Viv</b>: &nbsp;You said in your talk earlier, here in London, that WTO rules have been circumvented. What do you mean by that, and what are the implications of that statement, or that observation?</p>
<p><b>Simon</b>: &nbsp;Saying that the WTO rules are circumvented is very different from saying that they have been avoided or broken. What I mean by circumvention is that where the WTO rules have tended to be stronger, that is in the area of tariffs and in trade defence, we find that the resort to those forms of protectionism in this crisis era, have been less than we might have thought otherwise, certainly given the experience of the 1930s and other recessions. Instead, what governments have done is to resort to other forms of protectionism, which are typically less well regulated by multilateral trade or such as public procurement measures, export taxes and visa restrictions. The latter two are not covered by WTO rules at all.</p>
<p>So, by circumvention we mean that the governments have on paper complied with their WTO obligations. But they have sought to protect in ways which are not covered by strong WTO rules. So, in that sense, they're living within the law, but not necessarily within the spirit of the law.</p>
<p><b>Viv</b>: &nbsp;And what about competitive devaluations when countries deliberately devaluate in order to gain a competitive advantage?</p>
<p><b>Simon</b>: &nbsp;We found some cases of competitive devaluation. And where a government announces that their purpose is to benefit their exporters and to reduce import competition, we've listed that in the database. If governments have engineered a competitive devaluation without publicly admitting it, we find it harder to put that in the database because those governments could argue that the devaluation was a function of market forces, and not a deliberate act. So, we've put in the more deliberate, blatant forms of competitive devaluation. And some countries have engaged in plenty of devaluations, like Vietnam. And there's been an attempt to try and restore their competitiveness through repeated devaluations of the Dong against the Dollar.</p>
<p><b>Viv</b>: &nbsp;And what about bank bailouts? Do you think they are a bad thing?</p>
<p><b>Simon</b>: &nbsp;Well, bank bailouts which don't discriminate against foreign commercial interests, I have no problem with. And the GTA generally has no problem with state measures which don't discriminate. When a measure discriminates, then we include it in the GTA. And when the measure is also justified by a non‑trade government objective, like financial stability, then we state that, and we allow our readers to judge whether or not the discrimination was necessary to attain the financial stability objective.</p>
<p><b>Viv</b>: &nbsp;You mentioned in your talk that there were two hundred trade defence measures in the works. What does that mean exactly?</p>
<p><b>Simon</b>: &nbsp;That means the following: Trade defence measures require an investigation before they can result in protection being implemented. And those investigations can take up to 18 months. So, countries go through those investigations at different paces, and what we mean is that two hundred investigations have been initiated by governments and have yet to be completed and result in a decision whether or not to impose duties or not.</p>
<p><b>Viv</b>: &nbsp;So, do you think there is generally, on your side, at least, still a call for vigilance from governments?</p>
<p><b>Simon</b>: &nbsp;There's definitely a call for vigilance, and that call for vigilance is stronger now than it was in the run‑up to G20 Summit. And there's a problem here in that the G20 has tended to demote trade over time. And in the run‑up to the Cannes Summit, one doesn't get the sense that trade policy is being taken very seriously. Hopefully, this report and the report of the WTO, which was quite skeptical too, will help raise the profile of trade policy in the run‑up to the G20 Summit and ensure that leaders give the subject the attention it deserves,</p>
<p><b>Viv</b>: &nbsp;You mentioned the WTO then, in the early days of GTA, I recall that there was some antagonisms between the WTO and the GTA about whose sort of territory this sort of monitoring was. Do you think there's justification in that, or do you think that the two monitoring exercises are compatible and useful for public information?</p>
<p><b>Simon</b>: &nbsp;The two exercises are compatible and are different as well. And we look at the set of state measures that could be trade‑related in a different way from the WTO. And we tend to consider a wider set of measures than the WTO does. The WTO also engages in some computations of the amount of trade covered by some forms of protectionism. And that's a useful exercise. Our initiatives then, I think, are different, but they are complementary. And I think over time, they have both been welcomed as contributions to the monitoring of state behavior during the crisis.</p>
<p><b>Viv</b>: &nbsp;How would you sum up the sort of policy advice you would like to give the G20?</p>
<p><b>Simon</b>: &nbsp;The policy advice must be threefold. First, vigilance is still required and protectionism must be thwarted and avoided wherever possible. Secondly, that the substantial amount of protectionism put in place during the crisis must be unwound. And third, that the best place to start that unwinding is with the measures which hurt the least developed countries. And we reckon that there's a substantial number of them in the database, about 10 percent of all protectionist measures hurt a least developed country. As a result, we think that they should be the target of liberalization first.</p>
<p><b>Viv</b>: &nbsp;Simon Evenett, thanks very much for talking to us today.</p>
<p><b>Simon</b>: &nbsp;Thanks.</p>

Topics:  Global crisis International trade

Tags:  protectionism, GTA

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Professor of International Trade, University of St. Gallen; Research Fellow, CEPR


CEPR Policy Research