One of the major topics during this week’s G20 summit is the continued fight against global trade protectionism. Leaders vowed to limit protectionist actions and encourage trade to aid the global economic recovery. However, as a new European Commission report details, over 150 new trade restrictions were implemented throughout the world just last year and only 18 have been resolved.
The report highlights:
“Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”
“Brazil accounted for more than one-third of restrictions related to government procurement, followed by Argentina and India.”
“The EU’s partners have also continued applying stimulus measures, in particular supporting exports”
Some countries are protecting their domestic industries from foreign competition, Brazil and India are most notable.
On October 1, 2012 in Washington D.C., WTO Director-General Pascal Lamy gave a speech at Brookings Institutes about the future of trade. In his speech, he mentioned about new trading powers – China, Brazil, India, Mexico and Malaysia as the drives of global export growth. Nature of trade has changed because of the increasing integration of production of products.
“For centuries, the mercantilist approach of single country product was a driving force in trade policy”, Lamy said, and has still been a heated argument about whether exports were good and imports bad. It is now very hard to disintegrate the goods and services since nearly 60% of the merchandise trade happened in components. Such changes in the nature of trade from single manufacturing sites to global value-chain productions has urged for re-thinking of our trade calculation. According to Lamy, “if the measure of trade was in value-added rather than gross statistical terms, bilateral trade balances would look very different” – WTO economists believe that China’s $295 billion trade surplus with the U.S. would be reduced by nearly half.
On the other hand, Lamy also suggested that tariffs and other trade regulations can have profound impact in trade. He points out that an “open” conversation on international trade should be facilitated given the changing environment.
Governments often impose barriers that interfere with trade. The Office of the U.S. Trade Representatives (USTR, www.ustr.gov) defines trade barriers as “government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products.” One typical barrier consists of “voluntary” import restraints that are applied selectively against trading partners, an approach used primarily with the textile, steel, and automotive industries. Voluntary restrictions, ensured through severe threats against trading partners, are designed to help domestic industries reorganize, rebuild, and recapture their trade prominence. Countries that do no use voluntary measures often implement tariffs. This approach helped preserve the Harley-Davidson Company in the U.S. during the 1980s when the duty on imported Japanese heavy motor-cycles was temporarily bumped from just over 4 percent to almost 50 percent.
This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.
Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 17.