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Trade Protectionism 'Flawed,' Says WTO Chief

by Ulrika Lomas, Tax-News.com, Brussels

11 October 2016


World Trade Organization Director General Roberto Azevedo has said that arguments in favor of protectionist measures to compensate for the negative economic effects of freer trade are "flawed" and should be re-evaluated by governments.

In an October 7 speech hosted by the International Monetary Fund, Azevedo said that while sometimes trade is "imperfect," and can have negative consequences for industries in certain countries, he stressed that trade is nevertheless "essential for economic growth and development around the world."

He also suggested that trade often gets the blame for job losses when in fact other economic forces are usually to blame, particularly technological advances.

"The charge often leveled against trade is that it sends jobs overseas, particularly in manufacturing," Azevedo observed. "Trade can indeed cause this kind of displacement, and we need to respond to it. But actually trade is a relatively minor cause of job losses."

"The evidence shows that well over 80 percent of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation. 150,000 Kodak employees lost their jobs to new technologies like Instagram, which was developed by just 15. A 10,000 to one ratio," he added.

"So we need to be clear-eyed about the problems in the job market," the WTO chief continued. "No-one could attack technology - trade is a much easier scapegoat. But the wrong diagnosis leads to the wrong medicine. And, when trade is considered the main issue, all too often the suggested prescription is protectionism. This medicine would harm the patient, rather than help him."

Azevedo went on to argue that protectionism is "flawed in so many ways."

"By pushing up prices, it hits the poorest the hardest. People on high incomes would stand to lose up to 28 percent of their purchasing power if borders were closed to trade. But what would happen to the poorest consumers? They could lose up to 63 percent of their spending power," he said.

"More than that, protectionism is an ineffective and very expensive way of protecting jobs. When the US applied tariffs on Chinese truck tires in 2009, it was estimated that, due to higher prices, it cost the economy USD900,000 to save each job. Furthermore, there were job losses in the tire retail sector due to slumping sales," he added.

"For these reasons - and many others - protectionism is the wrong medicine," Azevedo stressed.

However, governments still appear willing to resort to protectionism when feeling economically vulnerable. The WTO's last Trade Monitoring Report, published in July 2016, showed that 22 new trade-restrictive measures were initiated by WTO members per month during the mid-October 2015 to mid-May 2016 review period, with tariffs accounting for 57 percent of those measures. This constitutes a significant increase compared to the previous review period, which recorded an average of 15 measures per month, and is the highest monthly average since 2011.

During the same period, WTO members adopted 19 new measures per month aimed at facilitating trade, a slight increase compared to the previous review period. As much as 56 percent of these trade-facilitating measures are tariff reductions, often applied on a temporary basis.

TAGS: tax | value added tax (VAT) | law | accounting | employees | tariffs | manufacturing | retail | trade

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