Stop protectionist backlash
now
by Maria
Livanos Cattaui
Paris, 25 February 1999
- With recession biting deeply in many parts of the world, the lure of politically
expedient, discriminatory protection of domestic goods and services is beckoning
again. We have been down this path before and know where it leads.
Unless the United States and the European Union
cooperate to smother its resurgence and uphold global rules-based trade, protectionism
can eventually crush the trade expansion that is the world’s best h
ope
for broad-based growth and stability in the 21st century, and effectively march
us back into the 1930s.
But no such cooperation seems imminent. Indeed,
rather than leading by example to discourage new retreats behind tariff walls
and other beggar-thy-neighbor trade measures, the world’s two most powerful
economic entities have chosen to squabble; chosen to lock horns over, of all
things, bananas and to fight skirmishes with their other trade partners on issues
ranging from steel to timber, textiles, beef and even the cross-border transfer
of personal data.
Both sides should take the time to remember the
1930s and the havoc that followed passage of the Smoot-Hawley Act, the law that
raised US tariffs an average 53% overnight. Smoot-Hawley provoked so many other
countries to join a vicious circle of retaliation that they strangled trade
and investment and turned a recession into the Great Depression.
The financial crisis in South East Asia, turmoil
in Russia, economic stagnation in Japan, the threat to China and the repercussions
in South America undeniably have prepared some strategic ground for economic
nationalists who doubtless would have fought for Smoot-Hawley. And they have
not been slow about seizing that ground.
Excess capacity and shrinking industrial demand
in many parts of the world have raised concerns about job security. Thus the
pleas for anti-dumping protection by US and European steel makers as they compete
against imports of the Asian steel that lacks buyers on depressed Asian markets.
Other signs of growing protectionism may themselves
seem small, but they are troubling in their implications. The squabble between
the US and the EU over the Europeans’ imports of bananas from the Caribbean
and Africa rather than from Latin America is a noisy recent case in point. While
the sums involved were comparatively insignificant, the dispute has threatened
to undermine the World Trade Organization’s dispute settlement procedure,
the lynchpin of its supranational authority to enforce the rules holding the
multilateral trading system together.
The US Administration’s recent pledges to
resist domestic protectionist pressures and take the lead in further liberalizing
world trade are heartening. But recent US actions in the trade frictions with
the European Union undermine the credibility of those pledges. For the freer
trade the US Administration says it supports will require not only the "fast-track"
negotiating authority it advocates, but also renunciation of the kind of menacing
megaphone diplomacy that has characterised the banana war and related skirmishes.
There is a broader, better approach, an approach
with a growing international constituency. Great enthusiasm already exists on
both sides of the Atlantic for launching a new round of global trade negotiations
when WTO ministers meet in Seattle at the end of this year. As the private international
organization that develops many of the rules and terms used in global trade
transactions, the International Chamber of Commerce shares that enthusiasm.
Politically, it always is easier to liberalize
trade when economies are humming and hard to do so in tough times, when protectionism
is at its most seductive. Economically, however, tough times are precisely when
the world economy can benefit most from the jump start of a new round to further
liberalize trade and investment. Now is the moment
for joint leadership from
the world’s two major economies.
A clear resolve to launch and rapidly complete
global trade negotiations would provide a powerful tonic to restore the business
confidence in the emerging nations so needed to spur recovery from the economic
upheavals of the past two years. It would forestall the re-emergence of protectionism
in the bargain. The opportunity must not be lost.
Commission
on International Trade and Investment Policy