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| Summary: Should governments favour a country’s industries by means of protectionist measures? |
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Author:Jacqueline Rose ( United Kingdom )
Jacqueline is a History student at Clare College, Cambridge. A former convener of the PriceWaterhouseCoopers Cambridge Union Schools Competition, she now runs workshops for intermediate level Cambridge debaters. |
Created: Wednesday, September 17, 2003
Last Modified: Monday, July 24, 2006
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Freedom of international trade has been a goal pursued since 1948, when 23 countries set up the General Agreement on Tariffs and Trade (GATT), and tariff levels in the 1990s were only 10% of their post war level. Since then there have been nine trade talks (‘rounds’), the most recent being Uruguay (1993) and Doha. The 1993 round set up the World Trade Organisation (WTO), which now has over 132 members, and which strengthened regulation by making it impossible for countries to veto penalties for restricting trade.
The WTO is matched by regional trading blocs such as the European Union, North American Free Trade Area (NAFTA, set up in 1994), the Association of South East Asian Nations (ASEAN), and Mercosur (in South America). In 1990 there were 25 such areas; there are now in excess of 90.
Protection of domestic industry may take the forms of subsidies (paid to companies to decrease production costs), tariffs (duties levied on imported goods to artificially increase their price), or quotas (quantitative restrictions on imports). Increasingly, however, protectionism is taking the form of ‘anti-dumping measures’; dumping being when an importer artificially lowers their prices for a short period to drive competition out of business (‘predatory pricing’).
WTO rules do allow some forms of protection: duties in response to subsidised goods, protection against import surges, and anti-dumping measures. However, these are often poorly defined and slow to process through dispute-settlement procedures. Whilst progress has been made on IT and accountancy liberalisation, the most hotly disputed remaining areas are textiles (the world quota system will end in 2005), agriculture, shipping, and migration.
Research shows that the level of anti-dumping and anti-subsidy investigations have boomed in recent years, especially in areas such as India. These are mainly targeted against China, Japan, and America. Such action is favoured as the law is unclear, and tariff margins |
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| The first duty of every government is to protect its own citizens; a duty of care is owed to those whose economic prosperity depends upon industrial production. |
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It is right that a regime’s primary duty of care is to its own people; but prosperity for all is enhanced most by trade liberalisation and comparative advantage, not by vote-chasing. |
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| Even the WTO accepts the need for safety-valves when a country is opening up its economy. Anti-dumping measures (which can be tried at law) are more carefully targeted measures than blunt tariffs and quotas. |
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The WTO already has mechanisms for temporary protection of industry; but these are rarely used. Anti-dumping retaliation is as unnecessary and economically inefficient as any form of protectionism, and would rarely pass domestic antitrust legislation. |
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| In times of recession there is pressure to protect declining industries. Some localities, or countries, are dependent on a single source of manufacturing or agriculture, and allowing the free market to take its course would prolong or deepen an economic depression and drive huge numbers of people out of work. |
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Protectionism worsens depressions by cushioning firms from their effects, preventing sufficient diversification of sources of national income, and discouraging retraining to meet the needs of the future. The Depression of the 1930s was in fact worsened by restrictions placed on free trade (e.g. the USA’s Hawley-Smoot measures), as protectionism spiraled downwards into increasing retaliation. |
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| Developing countries need extra help in building a competitive economy; short-term subsidies to foreign companies are the early stages of import-substitution and economic independence. It is better that governments offer firms subsidies than try to cut corners on labour standards. |
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There is a difference between encouragement of foreign industry into a country, and protection of domestic suppliers. Competition will not merely be over the size of national subsidies, but also on wage costs and looser environmental and safety regulations. |
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| Many developing economies hit a glass ceiling as they attempt to stabilise their economies, as they are unable to diversify into different markets. Maintaining their former colonial relationships is the only way for them to defend themselves against large trading blocs. |
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Companies in developing economies often suffer from poor stockmarket flexibility and political uncertainty, as a capitalist mentality needs time to develop. The solution is not more protection, but for groups such as the EU to dissolve their barriers to trade. |
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| It is sensible for governments to protect domestic supplies of vital goods, such as oil, food and steel, from the political vicissitudes of world cartels; which is part of foreign policy and not pure economics. To prevent this is to invade national sovereignty. |
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Worldwide cartels of producers have recently weakened, especially for agricultural goods. For governments to engage in protectionism merely against international cartels is pure hypocrisy; national security will never be gained by the chimera of economic self-sufficiency. |
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| | This House Would Protect Its Industry
This House Would Build Its Own Walls
This House Would Look After Itself
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Posted: Wed Dec 20, 2006 12:08 pm |
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Author: Jacqueline Rose (United Kingdom)
Jacqueline is a History student at Clare College, Cambridge. A former convener of the PriceWaterhouseCoopers Cambridge Union Schools Competition, she now runs workshops for intermediate level Cambridge debaters.
Created: Wednesday, September 17, 2003
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Freedom of international trade has been a goal pursued since 1948, when 23 countries set up the General Agreement on Tariffs and Trade (GATT), and tariff levels in the 1990s were only 10% of their post war level. Since then there have been nine trade talks (‘rounds’), the most recent being Uruguay (1993) and Doha. The 1993 round set up the World Trade Organisation (WTO), which now has over 132 members, and which strengthened regulation by making it impossible for countries to veto penalties for restricting trade.
The WTO is matched by regional trading blocs such as the European Union, North American Free Trade Area (NAFTA, set up in 1994), the Association of South East Asian Nations (ASEAN), and Mercosur (in South America). In 1990 there were 25 such areas; there are now in excess of 90.
Protection of domestic industry may take the forms of subsidies (paid to companies to decrease production costs), tariffs (duties levied on imported goods to artificially increase their price), or quotas (quantitative restrictions on imports). Increasingly, however, protectionism is taking the form of ‘anti-dumping measures’; dumping being when an importer artificially lowers their prices for a short period to drive competition out of business (‘predatory pricing’).
WTO rules do allow some forms of protection: duties in response to subsidised goods, protection against import surges, and anti-dumping measures. However, these are often poorly defined and slow to process through dispute-settlement procedures. Whilst progress has been made on IT and accountancy liberalisation, the most hotly disputed remaining areas are textiles (the world quota system will end in 2005), agriculture, shipping, and migration.
Research shows that the level of anti-dumping and anti-subsidy investigations have boomed in recent years, especially in areas such as India. These are mainly targeted against China, Japan, and America. Such action is favoured as the law is unclear, and tariff margins
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