CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. Features
  3. Global Trade: Protectionism On The Rise?

Global Trade: Protectionism On The Rise?


By Tax-News.com Editorial
April 8, 2014


Three recent trade reports have suggested that with many economies still feeling vulnerable in the wake of the global financial crisis, governments are resorting to trade protectionism with increasing frequency. However, as this feature on global trade shows, there are perhaps more reasons to feel optimistic rather than pessimistic about the future for free trade.

In releasing the World Trade Organisation’s (WTO) global trade monitoring report in February 2014, WTO Director General Roberto Azevedo said that while trade volumes are expected to rise this year, so could the adoption of trade-restricting measures.

According to the report, trade is projected to grow by about 4-4.5 percent this year, slightly below the historical average since 1990 of 5.5 percent, and Azevedo reported himself to be “cautiously positive” about the overall outlook for world trade. However, he cautioned that there are still reasons to be concerned about trade restrictive measures. "We were not in great shape last year – and we have picked up a few bad habits which we need to shake off,” he said.

The trade-monitoring report says that the number of trade-restricting measure grew to 407 during the period from mid-October 2012 to mid-November 2013, up from 308 in the same period a year earlier. A total of 217 new trade remedy investigations were launched, which were mostly anti-dumping and safeguard measures. The number of other new trade measures also increased from 164 in the previous year to 190. The majority of these new measures were mostly import tariff increases and customs procedures. Compared with the trend in new restrictive measures, the number of new trade-facilitating measures reported by WTO members fell to 107 in 2013 – well down from 162 a year earlier.

The findings of the WTO report would seem to accord with the conclusions of a study by the European Commission released last September. The EU’s tenth "Report on Potentially Trade-Restrictive Measures" found that 150 new trade restrictions were introduced over the 12-month period under review, with almost 700 new measures having been identified since 2008.

The EU began reporting such initiatives after the onset of the global financial crisis. Its aim is to track the extent to which G20 countries comply with their commitment not to resort to trade restrictions and to remove those already in place. The report detailed trade-restrictive measures implemented by the EU's 31 main trading partners between May 1, 2012 and May 31, 2013 and it concluded there has been a sharp rise in the use of measures applied directly at the border, especially in the form of import duty hikes, with emerging economies the worst culprits.

The Commission identified about 150 new trade restrictions introduced over the period under review, whereas only 18 existing measures had been dismantled. A total of almost 700 new measures were identified as being introduced since October 2008. Brazil, Argentina, Russia, and Ukraine have increased their tariffs the most. However, Brazil and Argentina also accounted for a majority of reforms which force the use of domestic goods.

The Commission believes that Brazil and Indonesia provide the most striking examples of those countries shielding their domestic industries from foreign competition to the disadvantage of consumers.

"All of us need to stick to our pledge to fight back against protectionism”, commented EU Trade Commissioner Karel De Gucht. “It is worrisome to see so many restrictive measures still being adopted and virtually none abolished. The G20 agreed a long time ago to avoid protectionist tendencies because we all know these only hurt the global recovery in the long run".

The EU has since reported that it has made good progress in securing the removal of third countries' most trade-distortive barriers that hinder local companies' access to a variety of markets, but it warned that many challenges remain.

The 2014 edition of the EU’s Trade and Investment Barriers Report (TIBR), published in March 2014, assesses the progress made toward the elimination of trade and investment barriers faced by European companies. However, the usual suspects – i.e. the large emerging economies – continue to erect the most barriers to foreign trade. Indeed, a separate chapter was devoted to market access barriers established in Russia, which has only just joined the WTO.

In July 2013, the EU launched its first WTO Dispute Settlement case with Russia, to tackle a recycling fee on motor vehicles applying to imported cars. Legislation has since been passed by the Russian Duma which will require domestic car makers to pay the same recycling fee as foreign manufacturers, but the TIBR warns that its implementation will need to be carefully monitored over the coming months.

The report also explains that, "for a list of more than 150 products including meat, garments, refrigerators, used vehicles, car bodies, paper products and Information Technology Agreement products, Russia has incorrectly implemented its WTO bound tariffs. Whereas some lines have been corrected on September 1, 2013, some issues still remain on products such as paper, car bodies, and agricultural products."

The TIBR also points to the continued use of trade-restrictive measures in a number of other countries, including customs and tax measures in China, and the discriminatory treatment of imported wood in Japan.

On a positive note, the TIBR concludes that "a number of recent positive developments suggest that progress is under way and that the EU's Market Access Strategy is delivering on many fronts". For example, access to the Indian market for EU manufacturers of telecommunication products and electronic goods in particular improved in 2013. However, it warns that new barriers to trade are emerging “constantly” for European companies.

Given that the number of new trade barriers seems to be rising at a much faster rate than new trade-facilitating measures, it would be easy to draw negative conclusions about the state of the world trading environment from the WTO’s and EU’s reports. However, it must be remembered that these trade-restricting measures cover only a tiny percentage of overall world trade: the 407 trade barriers observed in the WTO report affect about 1.3 percent of world merchandise imports, or USD240bn; the trade remedy investigations cover around 0.2% of world imports; and the 190 other new trade measures affect 1.1% of global imports.

Other reasons for optimism include the recent breakthrough in the long-stalled Doha Round of world trade negotiations, and the forming of new regional free trade areas involving the world’s major economic powers.


Doha Round

In December last year WTO members approved the Bali Package, a selection of issues from the Doha Round designed to streamline trade, improve security in developing countries, and boost trade and development in the least developed countries.

In February 2014, Azevêdo urged members to work to implement the package this year and on March 14 he was able to announce that WTO members had made an "excellent start" in talks to revive the Doha Development Agenda.

The Doha Development Agenda, launched in 2001, seeks to achieve a global agreement to cut trade-distorting agriculture subsidies, phase out tariffs on industrial goods, open trade in services, facilitate customs operations, open trade in clean technology, adjust anti-dumping rules, and offer duty-free and quota-free access to the exports of the world's poorest countries. However, talks broke down in 2008 when about 80% complete broadly because developing nations suspected they were getting a raw deal from the developed world, especially in the contentious areas of agricultural market access, and on tariff cuts for certain industries.

"It seems that some factors were common among some of the Groups," Azevêdo said. "For example in Agriculture, Market Access and Services, it came across strongly that our approach should be balanced across all three issues – and that all three should be tackled together, simultaneously. There was also a clear emphasis on the parameters during the discussions – particularly on the importance of development, and on ensuring that we focus on outcomes that are doable."

He went on to say: "I think we have made an excellent start. I have heard a lot of good feedback, and I think there is much which we can build on constructively. But, nevertheless, there remains a lot to do."

A recent report from the Organization for Economic Cooperation and Development (OECD) emphasized the importance of concluding the Doha Round, noting that a multilateral agreement to cut red tape in international trade would dramatically reduce trading costs and add a substantial boost to the global economy. The OECD's research determined that the comprehensive implementation of all measures discussed in the Doha Round would reduce total trade costs by 10 percent in advanced economies and by 13-15.5 percent in developing countries. Reducing global trade costs by just 1 percent would increase worldwide income by more than USD40bn, most of which would accrue in developing countries, the report says.


Transatlantic Trade and Investment Partnership

The proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States is probably the most ambitious bilateral free trade agreement yet attempted.

In June 2012, a working group established jointly by the EU and the US issued an interim report and concluded that "a comprehensive transatlantic trade and investment agreement, if achievable, could generate substantial benefits for the US and EU economies." The report recommended the elimination of “all duties on bilateral trade, with the shared objective of achieving a substantial elimination of tariffs upon entry into force and a phasing out of all but the most sensitive tariffs in a short time frame.”

These sentiments were echoed in the working group’s final report, issued in February 2013, which reached the conclusion that a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, and which contributes to the development of global rules, would provide the most significant mutual benefit of the various options considered. That same month, the TTIP was one of the major new policy announcements made by Obama in his 2013 State of the Union address, and the negotiations were officially launched at the G8 Summit in June 2013.

The scale of trade between the EU and the US is awe-inspiring, and the trading relationship between the two powers is the largest and most complex in the world: goods and services trade flows were valued at an estimated USD2.7bn a day in 2012 and transatlantic investment was directly responsible for approximately 6.8m jobs in 2010.

According to the European Commission, the final agreement could see EU exports to the US rise by 28%, earning its exporters of goods and services an extra EUR87bn every year. It is said that the average family of four living in the EU would see their disposable income rise by EUR545 as a result of the agreement, and the European Commission has estimated that could add 0.5% to global GDP. US businesses and consumers would see similar benefits.


Trans-Pacific Partnership

The TPP in its original form was signed by New Zealand, Chile and Singapore on July 18, 2005 and by Brunei on August 2, 2005. It entered into force on May 28, 2006 for New Zealand and Singapore, on July 12, 2006 for Brunei, and on November 8, 2006, for Chile. These original four members are known as the P4 bloc.

From the beginning it was intended to invite further countries to subscribe to the agreement, and in November, 2008, Australia, Vietnam, and Peru announced that they would be joining the P4 countries in the TPP, followed by the United States in November 2009 and Malaysia in October, 2010. Then in June, 2012, Canada and Mexico announced that they would join also, and did so in November after consultations between other members. Japan joined in July 2013.

The agreement is very comprehensive, covering trade in goods and services, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, intellectual property, government procurement and competition policy. Tariffs were reduced by 90% initially, and are to be reduced to zero by 2015.

According to an analysis supported by the Peterson Institute, by 2025, the TPP could generate an estimated USD305bn in additional world exports per year, including an additional USD123.5bn in US exports, and boost global income by USD223bn per year.


ASEAN Economic Community

The Association of Southeast Asian Nations (ASEAN) member states – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and its free trade agreement (FTA) partners – Australia, New Zealand, Japan, China, India and South Korea – started detailed negotiations on the Regional Comprehensive Economic Partnership (RCEP) in May 2013.

The proposed RCEP, which aims to bring together the ASEAN's existing FTAs into a single comprehensive agreement, is envisioned to become one of the largest FTAs in the world, covering 3bn people and making up one-third of the world's gross domestic product at USD20 trillion.

Consistent with the RCEP Leaders' Joint Declaration on the Launch of Negotiations for the RCEP of 20 November 2012, and the Guiding Principles and Objectives for Negotiating the RCEP endorsed by RCEP Ministers on 30 August 2012, the new agreement should broaden, deepen and improve significantly all elements, including tariffs, in the existing ASEAN+1 FTAs.

The RCEP will include provisions to facilitate and enhance transparency in trade and investment between the participating countries, as well as to facilitate their engagement in global and regional supply chains.

Taking into consideration the different levels of development of the participating countries, the RCEP will include appropriate forms of flexibility, including provisions for special and differential treatment, plus additional flexibility to the least-developed ASEAN member states, consistent with the existing ASEAN+1 FTAs, as applicable.

It is also envisioned that the RCEP will become a platform for future trade and investment integration in Asia. It is hoped that the trade treaty will be concluded by the end of 2015.


Africa

The statement issued at the end of the 18th summit of the African Union (AU) in February 2012 confirmed that African countries will target the establishment of a continental free trade area (CFTA) by 2017.

The AU has produced a three-step plan in preparation for the CFTA, with the first move being finalization of the tripartite agreement between the East African Community, the Common Market for Eastern and Southern Africa and the Southern African Development Community by 2014.

The second will be to urge other trade blocs to follow the experience of the tripartite agreement and reach parallel agreements before, finally, the tripartite and other regional free trade areas would be consolidated into the CFTA initiative.

"Enhanced intra-African trade and deepened market integration can contribute significantly to sustainable economic growth, employment generation, poverty reduction, the inflow of foreign direct investment, industrial development and the better integration of the continent into the global economy," the statement said.

Africa has seven major regional trade blocs, including the Economic Community of West African States, the Economic Community of Central African States, the Arab Maghreb Union and the Community of Sahel-Saharan States, in addition to those within the proposed tripartite agreement.


Bilaterals

There are also numerous free trade agreements being negotiated at bilateral level, and the following list summarizes the main developments that have taken place so far in 2014 alone.

  • China and the Gulf Cooperation Council (GCC) met on January 17, 2014 to draw up an action plan on cooperation from 2014 to 2017 and agreed to accelerate negotiations on a free-trade agreement.
  • Following Australian Prime Minister Tony Abbott's plan to wrap up the long-running talks for free trade agreements with China, Japan, and South Korea by the end of this year, it was announced in January 2014 that an agreement with Japan is expected to be signed in July; South Korea and Australia initialled their bilateral free trade agreement on February 10, and agreed to its signing within the first half of this year.
  • At a joint press conference, following his official visit to Kuala Lumpur in January 2014, the Turkish Prime Minister Recep Tayyip Erdogan and his Malaysian counterpart Najip Tun Razak announced an April 2014 target for the signing of an FTA between their two countries. Turkey also agreed to begin FTA talks with Singapore in January.
  • During a meeting on January 16 in New Delhi between South Korean President Park Geun-hye and India's Prime Minister Manmohan Singh, the two leaders agreed to upgrade their comprehensive economic partnership agreement.
  • During a meeting on January 21 in Seoul between South Korea's Deputy Prime Minister and Minister of Strategy and Finance, Hyun Oh-seok, and the Vietnamese Deputy Prime Minister Nguyen Xuan Phuc, it was agreed to accelerate the on-going negotiations for a free trade agreement (FTA) between the two countries.
  • Wang Yingqi, Commercial Counsellor at the Chinese embassy in Sri Lanka, disclosed in January 2014 that Sri Lanka and China hope to conclude a bilateral FTA by the end of 2014.
  • Despite the ongoing political unrest, the EU remains eager to re-launch talks with Egypt on concluding a Deep and Comprehensive Free Trade Agreement.
  • In what has been described as, predominantly, a cancellation of tariffs on Canadian beef imports into South Korea in return for the elimination of duties on South Korean car imports into Canada, the two countries announced on March 11 that they have agreed the terms of their long-delayed negotiations for a free trade agreement.
  • In March 2014, the Swiss Council of States has adopted the FTA with China, signed in Beijing on July 6, 2013. 
  • Costa Rica's legislature approved a free trade agreement with Colombia at its first reading on March 3, 2014.
  • Following the cooperative attitude adopted in resolving recent trade dispute talks, leaders from the EU and China have discussed the prospect of concluding an FTA to add to investment treaty negotiations that were launched late last year.
  • On April 3, Mexico and Panama signed a free trade agreement that could pave the way for the latter to become a full member of the Pacific Alliance trade bloc.


Outlook

It remains to be seen if the scale of the ambition to build regional free trade agreements like the TPP, the TTIP and the RCEP is matched by political will in all of the participating nations. Certainly, these are extremely complex and delicate negotiations covering some sensitive economic areas and it is no surprise that numerous lobby groups have emerged to fight their corner, often backed by politicians. The TTIP negotiations have already entered choppy waters over non-tariff issues such as regulation, while the Democrats’ reluctance to give President Obama the authority to fast-track free trade agreements through Congress could make it virtually impossible for the US to ratify new deals as complicated as the TTIP and the TPP. What’s more, the inclusion of Japan, with its tightly protected agricultural and automotive sectors, could prove a step too far for the expanded TPP negotiations.

Overall however, fears that the world would descend into a downward spiral of ‘beggar thy neighbour’ trade protectionism as the financial crisis began to bite have been largely unfounded. The use of trade barriers as an economic management tool by emerging economies remains a problem, but when weighed against the total volume of global trade these infractions are relatively minor. Generally speaking however, there seems to be an acceptance in most countries that international trade is better free than unfree, even if is often politically-problematic for leaders and government ministers to say so.

 

Tags: trade | tax | China | Africa | investment | Russia | tariffs | Australia | Japan | Vietnam | Europe | agreements | Mexico | services | Canada | Singapore | European Commission | New Zealand | Panama | Brazil | Colombia

 

 

Back to Features

















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »