Protectionism can take various forms – including, for example, tariffs, licensing procedures for imports and exports, complex authorisation procedures, and mandatory requirements for local value-added in public procurement or market access approval.
Governments use such instruments to improve the position of local companies, to promote production and processing at home, and to create jobs. For local companies and consumers, however, protectionism often leads to a decline in international competitiveness, a reduced diversity of supply, and unnecessarily high prices.
Tariffs: Stumbling Blocks in World Trade
Tariffs are taxes levied on the import (import tariff) or export (export tariff) of goods. For decades, a clear downward trend in average global tariff rates could be observed. This trend may now be coming to an end. Moreover, many sectors still have high tariff peaks. In the European Union (EU), for example, data from the World Trade Organisation (WTO) indicate that tariffs of up to 258 percent are levied on dairy products. In the United States, tariff peaks for beverages and tobacco reach up to 350 percent. Classic industrial sectors are also affected by such high tariffs. In India, for example, tariffs peaks of up to 88 percent are imposed on certain textile products. Particularly in emerging and developing countries, high average tariffs make international and regional trade more difficult. China, for example, applies an average WTO bound tariff of 9.8 percent; India applies 17.1 percent, and Nigeria 12.1 percent.
Non-Tariff Barriers to Trade – New and Old Barriers to World Trade
Non-tariff barriers (NTBs) are policies that restrict trade but do not constitute tariffs. There are three types of NTBs:
- NTBs on imports: These include import quotas, import restrictions, import licences, customs procedures, and administrative fees.
- NTBs on exports: These include export taxes, export quotas, export bans, and other export restrictions.
- NTBs in the domestic economy: These are measures imposed behind the border. They include, but are not limited to, disclosure requirements for sensitive company data, joint venture obligations, technical standards, taxes or other levies, and domestic subsidisation.
Protectionism on the Rise
The G20 standstill agreement, i.e. the commitment to stop and roll back protectionist measures, contributed significantly to preventing a protectionism spiral during the last financial and economic crisis (2007-2010) similar to the one during the Great Depression of the 1930s. Recently, however, protectionism is on the rise again. Since October 2008, the WTO has regularly recorded new protectionist measures taken by its members. Between October 2008 and October 2019, WTO members introduced a total of 1.654 trade-restrictive measures. From May to October 2019, the G20 countries alone took restrictive measures affecting an estimated trade volume of 460,4 billion U.S. dollars. This is the second highest volume since the start of this calculation in 2012. Two periods previous from May to October 2018, the affected trade volume of 480.9 billion U.S. dollars was even higher.
Trade Defence Measures to Ensure Fair Competition
In recent reports, the WTO has made a more precise distinction between trade-restrictive measures and trade defence instruments. In principle, the WTO allows the use of trade defence instruments. They are intended to compensate for unfair competition (anti-dumping and anti-subsidy measures) or to provide breathing room for an industry to carry out structural reforms in the event of an import surge (safeguards measures). Tariffs can also be levied in the event of threat to national security, the environment, or human health. However, measures must comply with WTO regulations, and they should not be misused for backdoor protectionism. This is, unfortunately, not always the case, demonstrated by the large number of dispute settlement cases at the WTO, which peaked at 39 in 2018. In 2019, the WTO recorded 19 new disputes.
Transparency and Dispute Resolution against Protectionism
The WTO features several mechanisms to curtail protectionism and to settle disputes. These include the Trade Policy Review Mechanism (TPRM), the reports of the WTO Director General, and the WTO Integrated Trade Intelligence Portal (I-TIP).
These monitoring instruments have already led to greater transparency, as they show where states have taken protectionist measures; however, there are no real consequences for the states apart from “naming and shaming”. The WTO’s Dispute Settlement Mechanism (DS) is more effective in this regard. In the DS, WTO members can take action against other members if they violate WTO rules. The first step comprises consultations to allow the disputing partners to find an amicable solution. If this fails, a dispute settlement panel can be established. After the panel’s report has been published, members may appeal a panel decision. To enforce panel reports and Appellate Body decisions, the WTO can allow a member to implement retaliatory measures if the defendant does not correct its measures within the prescribed period.
The United States accuses the Appellate Body of regularly overstepping its mandate by creating new law to which the WTO members have not consensually agreed. As such, the U.S. government is currently blocking the nomination of new members to this important body. If no new members are appointed by December 2019, the DS will be essentially shut down. Ultimately, every trade conflict has the potential to escalate if it cannot be resolved in a rules-based process and without effective enforcement of WTO law. This would undermine the dispute settlement function of the WTO as a whole and severely damage the credibility of the entire multilateral trading system.
The BDI is actively committed to a strengthened and fully functioning WTO:
- Improvement of WTO monitoring instruments: The WTO Secretariat should clearly identify any undesirable developments within the framework of the transparency mechanism.
- Maintenance and strengthening of the dispute settlement mechanism: Above all, the bureaucracy and duration of the DS procedure should be reduced and the WTO’s dispute settlement capacities expanded. It is also important to fill vacancies in the Appellate Body as quickly as possible. In order to accomplish this, the criticisms of the United States should be addressed. If no solution is reached, a Plan B must be developed and implemented; for example, an appeal procedure based on Article 25 of the DS Agreement.
- Reduction of protectionist measures: The G20 countries must commit to publicly justifying any new trade restriction and any recurring barriers. Fighting protectionism must become a top priority of the G20 once again.
- Return to multilateral negotiations: As a multilateral platform, the WTO should once again be given greater prominence in negotiations. Plurilateral agreements can be an intermediate step in this direction.