Targeting Rich-Country Protectionism
Jubilee 2010 et al.
Even as the rich countries have lowered their trade barriers over the past five decades, they have continued to maintain a strongly protectionist stance against the labor-intensive products made in poor countries. This is a deplorable fact that trade economists and international institutions entrusted with trade policy—especially the General Agreement on Tariffs and Trade (GATT), which evolved into the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD)—have long noted and protested. The recent focus by the world's leaders on this question therefore revives a long-standing complaint.
The renewal of interest in this question is certainly welcome. The abandonment of protectionist policies would clearly improve market access for the exports of the poor countries and add significantly to these countries' economic prosperity, without which no sustainable amelioration of poverty is possible. But the really important questions are, how do you manage to get this protection down and in what form?
The current popular answer to the first question: talk and condemn; to the second: go for preferences for the poorest countries—the so-called least developed countries. A recent European Union (EU) initiative is to offer the group of 49 least developed countries free access to EU markets for "everything but arms." I am afraid that the first answer is both dangerous and inadequate, and the second answer is exactly the wrong way to go about eliminating or reducing protectionism. We can do a lot better.
The talk-and-condemn routine
Judging by the reactions of the antitrade nongovernmental organizations (NGOs) and even the pronouncements of the poor countries' leaders at the World Economic Forum in Davos, Switzerland, this year, the tendency of the leadership of some international agencies (the World Bank, for example) to focus publicly on rich-country protectionism while failing to mention poor-country protectionism has led to a proliferation of fallacies that pose a danger to good trade policy in the poor countries. At the same time, exhortations go only so far, as we know from the long history of exhortations, lulling us into confusing sentiments with effective policies. Instead of talking and condemning, we need to think of concrete ways in which we can produce results.
Fallacies. Among the many dangerous fallacies spawned by the one-sided rhetoric, my favorites are the following three:
Rich-country protection is higher than poor-country protection. This proposition is belied by the facts. The work of trade economists Michael Finger and Ludger Schuknecht shows that the poor countries' average tariff rates are still higher than those of the rich countries, and this is true in most sectors. Besides, antidumping actions by poor countries are beginning to outnumber those by the rich countries.
It is wrong to ask the poor countries to lower their trade barriers when there are trade barriers in the rich countries. This is an elementary economics error. As Joan Robinson, one of the most prominent economists of this century and a member of the Cambridge School, famously said, if your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own. It may sound "fair" to do so, but it is downright silly, even self-destructive.
Exports from poor countries fail to grow because of protection in the rich countries. A small yes but a big no. Even as we condemn rich-country protectionism, we must never forget to remind the poor countries that their own trade policies are often the cause of their dismal export—and, hence, economic—performance. Just contrast the splendid export performance of the East Asian economies that either embraced free trade (Hong Kong SAR and Singapore, for example) or offset the anti-export bias of their protectionist regimes with export subsidies (Republic of Korea) with the abysmal export performance of India for nearly forty years. Both groups of countries faced virtually the same trade barriers abroad.
Tackling protectionism. Even though the rhetoric against rich-country protectionism can be corrected to avoid the unwitting propagation of fallacies that could prove fatal to good trade policy in the poor countries, it still cannot deliver what we seek. After all, the protection against labor-intensive products from the poor countries has survived a major assault on protectionism since the Second World War. Removing it is like taking out the sturdiest weeds in your garden.
One way to do it is, of course, to endorse a new round of multilateral trade negotiations—what would be the first WTO round. After all, it was only through the Uruguay Round of trade negotiations that we managed finally to put the Multifiber Arrangement (MFA) on the block, and the very same trade negotiations also set in motion, however slowly, the dismantling of agricultural protection.
But, taking the Jubilee 2000 movement (which called for debt relief for the poorest countries by the beginning of the year 2000) as an example, we also need to mobilize those parts of civil society that are in favor of, rather than against, protectionism. In Seattle and elsewhere, they and other groups—particularly church groups—have marched alongside protectionists, identifying themselves with rich-country workers seeking to contain international competition. But the church groups, which typically think of two worlds, this and the next, at the same time, should also be able to think of both the First and the Third Worlds simultaneously.
Surely, one can expect them, of all groups, to understand that they should not support rich-country protectionism against the poor countries. Rather, they must favor policies that take the welfare of both the First World and (the far poorer) Third World workers into account. This requires that they put their weight behind the dismantling of rich-country protection on labor-intensive products, but at a pace and with institutional support for adjustment and retraining that are compatible with a humane concern for rich-country workers in these uncompetitive industries.
I and Arvind Panagariya, Professor of Economics at the University of Maryland and Chief Economist at the Asian Development Bank, have asked recently (Financial Times, March 29, 2001) for a Jubilee 2010 movement, with 2010 as the target date for the removal of rich-country protectionism. The response to this call is growing, and United Nations Secretary General Kofi Annan recommended it to the attention of the assembled NGOs when he addressed them at the Brussels Conference on Least Developed Countries in early May 2000. The task of making it succeed will fall on the NGOs and the churches (in the broadest sense, embracing all religions) from the Third World: they should prod and mobilize their First World counterparts into turning away from their hitherto protectionist positions.
Preferences versus dismantling protection
The Jubilee 2010 proposal calls for removing protection on a most-favored-nation basis against labor-intensive products. Contrast this with the EU's "everything-but-arms" proposal, which removes protection preferentially for least developed countries.
The latter is vastly inferior. Leaving aside the many reservations built into it—the Cairns Group (a coalition of 15 agricultural exporting nations that promotes freer trade in agriculture) cynically calls it the "everything-but-farms" initiative—it draws a preferential line among the poor countries and, if successful, could hurt poor countries just above the poverty line by diverting their exports to help the poor countries below it. Also, preferences send the wrong message to the least developed countries—that they cannot compete except on crutches—which belies the robust experience of comparable Far Eastern economies decades ago. It is surely better to dismantle protection on labor-intensive products altogether and to direct special and generous aid and technical assistance programs to the least developed countries instead.