Protectionism - developed Vs developing economies

Economix draws an ineresting distinction between protectionism in developing

and developed countries. In the former, it takes the shape of import tariff
barriers or even outright bans, while in the latter it is more likely through
subsidies to domestic industries and non-tariff barriesr (labour, environment,
phyto-sanitary conditions). And the bailouts make it even more difficult to make
the distinction between genuine assistance to distressed companies and
subsidies that come in the way of trade.

Since 1945 the world economy has shown high growth rates associated with the
liberalization of goods and services and increased capital flows.  However the
current global financial crisis has raised concerns for many countries regarding
present and potential losses that can be suffered in income and employment. 
The risk of protectionist policies has heightened as the financial crisis deepened
and economic activity decreased with rising unemployment.  

Since the start of the financial crisis the World Bank has estimated that 78
trade measures have been imposed or implemented.  These trade measures
include 66 trade restrictions of which 47 took effect.  Several countries have
raised border barriers, introduced subsidies or stimulus packages for export-
orientated or import competing industries and increased the use of trade
remedies. A pattern is beginning to emerge of an increase in import licensing,
import tariffs and trade remedy utilization to support domestic industries. 

Historical economic evidence also suggests a strong link between the increased
use of import restrictive trade remedies such as anti-dumping measures and
safeguards and an economic downturn associated with recessions.  The Global
Anti-dumping Database shows that the implementation of product level trade
remedies increased by 34 percent in 2008 and in the first quarter of 2009 the
utilization increased by 22.3 percent.  The imposition of definitive measures in
2009 is projected to be 18.5 percent higher than in 2008. 

A number of countries have implemented trade remedies, with South-South

trade increasingly being affected by these measures.  Developing countries have
initiated 74 percent of trade remedy investigations in the period from the first
quarter in 2008 to the same period in 2009 with the targeted exporters also
primarily being located in other developing countries. However these inward-
looking policies risk the retardation of market corrections, distorting trade and
triggering retaliation by trade partners.  

African countries have not played a major role in the current utilization of
import restrictions even though some of these countries’ major trading partners
have implemented different forms of import restrictions, investment and finance
support and job protection measures.  The increased implementation of
protectionist policies by or against developing and least developing countries
can jeopardise growth prospects and developmental goals, especially for African
countries.
 Protectionism can lead to higher unemployment and prices with an
increase in debt.  Protectionist policies arguably lead to an increase in the
cost of consumer goods and production inputs.  Due to the protection of
domestic industries, foreign competition is reduced which can have the
undesired effect of inefficient domestic firms.
 Export subsidies are concentrated on few products, including dairy, beef
and fruits and vegetables.  These products can often be produced and
exported more efficiently by developing countries.  However an increase in
export subsidies penalizes developing country producers which do not have
access to subsidies and provide an incentive to over produce.  This can lead
to a surplus in the market leading to lower world prices and limiting the
ability of developing countries to compete in local and export markets. 
African economies are dependant on agricultural exports thus an increase in
subsidies can lead to a decrease in revenue and a deterioration of the trade
balance for many African nations.
 If countries take advantage of the gap between applied and bound rates
(water in the tariffs) the potential negative impact on world trade and welfare
has been estimated at a decline of 7.7 percent in world trade and US $ 353
billion in world real income.  The increase of tariffs on agricultural products
will have a dramatic effect on exports and welfare for developing and least
developed countries.

  
The World Trade Organisation (WTO) and the World Bank have indicated that
the contribution of  protectionist policies to the decline in trade has been
limited to date, however looking forward there is a risk of a retreat from trade
liberalization and open border policies which has been followed in the past
decade.  Although the level of trade affected by protectionist policies has thus
far been small for most economies, these policies can have important welfare-
distorting effects beyond the loss of imports and losses to domestic consumers.

As the financial crisis puts increase pressure on African economies the question
remains whether governments will resist political pressure to utilize the
implementation of protectionist measures to protect domestic industry and
employment?  South Africa has already indicated that they are considering
raising import tariffs on garments to maximum levels agreed to by South Africa
in the WTO.  Is this an indication of policy measures to come by African
countries as economic activity decrease due to the global recession?