It is an accepted fact that rich countries have not fully dismantled their tariff barriers. It is also a fact that this lack of action hurts not only the rich countries themselves, but the poorest of the poor countries too.
These truths have been known, and the situation condemned by economists (as well as many policymakers and political leaders), for at least a quarter of a century. Indeed, the writings of virtually all policy-concerned trade economists and even the research at institutions such as UNCTAD have documented, and denounced, rich country protectionism for decades.
The recent castigation of rich-country protectionism by the heads of international agencies and in the media, while welcome, is therefore little more than a reiteration of the obvious. But the absence of a simultaneous and equally pointed focus on the protectionism of poor countries, which has also been amply documented by informed trade economists, has encouraged several fallacies which can only make it harder to reduce protectionism in those countries. These fallacies need to be exposed and the latest critics, far too often non-trade experts, asked to always condemn protectionism in both poor and rich countries, even as they wreak more contempt on the rich ones.
At the same time, we need targeted input into public policy from upstanding groups such as churches, not against free trade, but against trade barriers. And since rich-country protectionism against the labour-intensive products of the poor countries remains a hard nut to crack, we are now working for a Jubilee 2010 movement directed against the kind of rich-country protectionism that particularly hurts poor countries.
The following fallacies handicap the removal of poor-country protectionism.
Rich-country protection is higher than poor-country protection.
Many poor-country politicians have exploited the focus on rich countries’ protectionism to say that this system of trade barriers is “unfair” to them, in the sense that trade barriers are asymmetrically higher in the rich countries, especially if they are measured only against the poor countries’ exports. But the facts about tariff barriers in the rich and poor countries do not bear this out. In fact, it is still true that, on average, poor countries have higher protection than rich ones. This is evident from the graph below, drawing upon work by Michael Finger and Ludger Schuknecht (see references). Thus, for industrial products, rich-country tariffs are at 3% compared with 13% for poor countries. Even in textiles and clothing, the poor-country tariffs at 21% exceed the rich-country tariffs at 8%.
To be sure, not all developing countries are equally protectionist. For many years now, Singapore and Hong Kong China, which have traded their way out of developing country status, have been textbook examples of free-trading economies. Likewise, protection levels in middle-income areas such as the Republic of Korea and Chinese Taipei are not markedly higher than in developed countries. But the countries that stand to benefit most from competition are precisely those that have the highest protection. These include most countries in South Asia and Africa, whose average tariff levels are markedly higher than the average both for developing countries and for developed countries.
True, the peaks in tariffs in developed countries are concentrated against the exports of poor countries, and applied with potency to basic products like textiles and clothing, footwear and fisheries. But as UNCTAD’s estimates show, even the peak tariffs in developed countries apply to only about a third of developing country exports. Furthermore, as Messrs Finger and Schuknecht document, much of the protection against developing country exports is concentrated in developing countries themselves: in other words, protection against each other. As to non-tariff barriers, particularly anti-dumping actions, the developing countries are rapidly catching up with rich-country practices and excesses. Economists Michael Finger, Francis Ng and Sonam Wanchuk have estimated that, during 1995-99, rich countries initiated 401 anti-dumping actions whereas poor countries started 464. Anti-dumping actions are proliferating and are no longer the exclusive weapon of the rich countries. In short, trade barriers do not appear to be asymmetrically stacked against poor countries.
Trade barriers against poor countries reflect hypocrisy on the part of rich countries.
This is a sentiment voiced by many pro-poor NGOs. Yet a closer look at the existence of poor country protectionism reveals a more prosaic explanation of rich country protectionism. The persistent presence (despite the general and immense postwar liberalisation of trade by the rich countries) of protection against the labour-intensive exports of the poor countries can be partly, perhaps even largely, explained as a consequence of reciprocal bargaining. As long as the poor countries received most-favoured-nation treatment in trade rounds, and the prevailing orthodoxy that their protectionism was not harmful to them and that they were too “underdeveloped” to liberalise exempted them from having to make any trade concessions, the rich countries proceeded to make tariff reductions in goods that were of interest only to themselves. Of course, until the late 1980s, rich countries were indifferent towards the rather small markets poor countries had to offer. But this changed as many of these markets expanded.
It is wrong to ask the poor countries to lift their trade barriers when there are trade barriers in the richcountries.
This view was echoed at a conference in New Delhi, when Nicholas Stern, Chief Economist, World Bank, said it was “surely hypocritical of rich countries to encourage poor countries to liberalise trade and to tackle the associated problems of adjustment, while at the same time succumbing to powerful groups in their own countries that seek to perpetuate protection of their narrow self-interest”. As a political principle, this seems sound, but in economics, it is an elementary error. As Joan Robinson famously said, if your trading partner has rocks in his harbour, that is no reason to throw rocks into your own. Many western NGOs and some church groups that often echo Mr Stern’s argument fail to understand that protection does the poor nations no good. Rather, it adds to the harm.
In fact, the proper and helpful way to put the argument is quite different: that, politically, it is harder to make progress on trade liberalisation worldwide when rich countries themselves have massive subsidies and protection.
Exports from poor countries fail to grow because of protection in rich countries.
A small yes but a big No. Even as rich-country protection is properly condemned, protectionism in poor countries is quite often the chief culprit in their dismal export and economic performance. To understand this, consider a simple analogy. Imagine you are a poor country. Two doors come between you and the rich-country mansion. The mansion’s door may be closed: this is rich-country protection. But you must also get past your own door, and that may be closed: this is poor-country protection and creates a bias against exports. We might also add: even if both doors are open, there may be no traction in your legs and you need therapy; this is the “supply capability” question on which there has been considerable attention of late. We feel the almost exclusive focus on this aspect has been too static and does not adequately allow for the fact that, if both doors were open to a reasonable degree, there would be an incentive to acquire the missing traction.
Thus, in regard to these doors, consider the outward-oriented Far Eastern economies, which either pursued free-trade policies (Hong Kong and Singapore) or, in second-best fashion, offset the anti-trade bias of their protection, albeit in a less desirable fashion through export subsidies (Republic of Korea and Chinese Taipei). They managed to register a huge export performance, whereas import protection in countries like India hurt their own exports. Yet both sets of countries faced virtually the same trade protectionism abroad. The postwar experience strongly underlines the propositions that export pessimism is self-fulfilling and that incapability feeds on itself, whereas those who set their policies to exploit foreign markets have usually found it possible to do so, and overcome protectionism abroad.
Jubilee 2010: targeting rich-country protection against poor countries.
So, the fallacies that are fatal to the economic health of the poor countries can be refuted. That should help restore our focus on the real need to reduce protection in poor countries that need to go further. But what about rich-country protectionism?
Evidently, multilateral trade negotiations are important, and the recent launch of a new round at Doha, with an explicit mandate to address the tariff peaks in the rich countries, is a welcome development. But surely we should also harness the energies and sentiments of civil society groups, including church groups in particular, to eliminate protectionism. At Seattle and elsewhere, these groups marched alongside protectionists, identifying themselves wholly with rich-country workers in most cases, though some, equally without sound justification in our view, attacked trade for hurting the welfare of workers in poor countries.
These groups forget that it takes two to tango, that they should promote the wellbeing of workers not just in the First, but also in the Third World, together and at the same time. This requires that church and civil society groups put their weight behind the dismantling of protection against the labour-intensive exports of great importance to the poor countries, albeit at a pace and with institutional support for adjustment and retraining that are compatible with a humane concern for our workers.
Hence our call over a year ago for a Jubilee 2010 movement (inspired by the Jubilee 2000 movement that finally led to debt relief) where free traders, church groups and NGOs join forces to dismantle rich-country protectionism by 2010, in a progressive set of targeted reductions of trade barriers on labour-intensive goods where poor countries have marked production advantages. These reductions would be accompanied by substantial infusion of funds to retrain and relocate any poor, displaced workers in the rich countries.
We are happy to note that UN secretary-general, Kofi Annan, at the Brussels conference on development last year (when the far less significant “anything-but-arms” initiative to grant tariff-free access to 99% of imports from the world’s 48 poorest countries was announced by the European Union) brought the Jubilee 2010 idea before the assembled NGOs. We plan to follow through this idea whose time, we believe, has come.
• Finger, M., and Schuknecht, L., “Market Access Advances and Retreats: The Uruguay Round and Beyond,” World Bank Working Paper 2232, November 1999.
• Finger, M., Wanchuk, S., and Ng, F., “Anti-dumping as Safeguard Policy,” paper presented at the conference, “Issues and Options for the Multilateral, Regional and Bilateral Trade Policies of the United States and Japan,” University of Michigan, October 2000.
©OECD Observer No 231/232, May 2002