Feb 15, 1990

NO SIGNIFICANT ABATEMENT OF PROTECTIONISM IN NORTH.

GENEVA, FEBRUARY 13 (BY CHAKRAVARTHI RAGHAVAN)— Despite sustained economic growth and the impetus provided by the Uruguay Round, "protectionism in the developed market-economy countries has not abated to any significant extent", according to the UN Conference on Trade and Development.

"Though there has been liberalisation of some measures in 1989, there does not yet appear to be any cause for optimism ... The continued recourse to trade restrictions is unmistakable".

Resort to protectionism is widespread and managed trade is gaining ground because structural adjustment policies in ICs are not adequate to discourage the demand for protectionism, UNCTAD says in a report (TD/B/l240) to the March meeting of the Trade and Development Board on "Protectionism and Structural Adjustment".

"In order successfully to fight against protectionist pressures, it is important for governments to pursue establishment of national mechanisms to evaluate impact of protectionist measures on the domestic economy as a whole and on the export prospects of developing countries, as decided in the Final Act of UNCTAD-VII", the report adds.

Many governments in ICs, UNCTAD notes, have followed forward looking strategies with regard to new and promising industrial activities and promoted technical research relevant to long-run industrial, development.

Such subsidisation of technology-intensive industries and industrial research projects has been distinctly selective and sectoral in its orientation. Selectivity and sectoral focus have also been features of development policies of a number of developing countries, which have supported resource allocation in line with, perceived evolution of their comparative advantages.

"There is cause for concern, however, in technology policies in ICs which provide assistance for projects with the aim of regaining competitiveness in production sectors where comparative advantage has shifted in favour of developing countries. Such policies render it more difficult to exploit fully the potential for an expansion of trade between the developed and developing economies".

The report notes that non-tariff measures (NTMs) due to expire in recent years have generally been renewed and, since the launching of the Uruguay Round, a large number of NTMs have either been introduced or renewed.

The report refers in this connection to the extension by the U.S. of "voluntary" restraint agreements governing steel trade, which where due to expire in September 1989, by 2-1/2 years.

Also, the search for bilateral solutions to trade problems continued to be a matter of concern, while the announcement of certain actions under S. 301 of the U.S. Omnibus Trade and Competitiveness Act had caused great concern to trading partners.

In some ICs modest liberalisation has taken place. In the area of tropical products, liberalisation was implemented as an early result of the Uruguay Round mid-term accord.

"However, the resulting reduction in average tariffs, tariff escalation and non-tariff measures seems to be modest".

Third World countries have persisted in their trade liberalisation efforts in the content of their development process, while the socialist countries continued to introduce market-oriented policy reforms and to decentralise foreign trade management.

There were less anti-dumping (AD) and countervailing (CV) duty actions initiated in period July 1933 to June 1939 than in previous 12 months - l24 against 155.

The number of new cases initiated in Canada and the U.S. decreased significantly, but remained practically unchanged in the EEC.

But the number of cases involving the Third World countries decreased less proportionately and, consequently, the share of actions affecting these countries increased: from 46.45 percent in 1988 to 49.19 percent.

In terms of NTMs the secretariat’s preliminary estimates are that the 1986 trade coverage of NTMs applied in 1989 was slightly lower than a year before.

But the trade coverage of the stock of outstanding AD/CV actions has increased from 1988 to 1989.

There was also higher resort to increased tariffs as a sanction against allegedly unfair actions by trading partners.

Over the period 1981-1989, the trade coverage of quantitative import restrictions has increased by some five percent. There was a particularly large increase in the steel sector and some 40 percent of value of imports into the ICs are now governed by Voluntary Export Restraints (VERs).

In 1989, 27.2 percent of all imports of textiles and yarn and 56.4 percent of clothing where the subject of VERs and OMAs. Those on footwear have however been reduced dramatically from 34.1 percent in 1981 to 2.9 percent in 1989.

The VERs and OMAs on all items, excluding fuel, stood at 8.5 percent in 1989 compared to 7.1 percent in 1981.

NTMs, UNCTAD points out, affect Third World countries to a greater extent than intra-trade among ICs, while the trade coverage ratios of NTMs applied against socialist countries are also higher than those applied against all trading partners.

There is also increasing evidence that NTMs have a strong effect on trade flows and trade in affected products has been generally growing less rapidly than in other sectors and trade has been shifted away from countries imposing NTMs to other markets.

The share of new investigations in AD/CV actions involving Third World countries has gradually increased, from around 20 percent in 1980-1982 to more than 40 percent during 1986-1988.

Over the whole period such actions affected 38 Third World countries. Those most frequently involved were South Korea (107 investigations), Brazil (99), Taiwan (74), Mexico (43) and Yugoslavia (36).

AD/CV duty investigations have involved particularly steel and chemical products, and there has been a growing number of cases involving electronics.

In both the U.S. and the EEC imports originating in countries involved in AD/CV cases have in most cases declined in the two years following initiation of the investigation, UNCTAD finds.

Although the share of cases showing decreasing trade after initiation of an investigation has been higher when such investigations resulted in imposition of duties, trade has nevertheless declined.

In the U.S. the number of negative cases showing lower import values in the two years after the initiation of an investigation out numbered the number of negative cases where imports continued to grow.

VERs, the report notes, are only one of many instruments used by importing countries to protect domestic sectors.

The EC uses quantitative and minimum pricing measures in about equal proportions. Japanese imports are controlled primarily by import quotas with no VERs whereas the U.S. uses VERs on more than one-half of imports subject to restraint.

Excluding textiles and clothing the EC and U.S.A account for 87 percent of export restraint agreements in force. The EC agreements range widely across product sectors (Brazil and Korea in steel, Korea in footwear, Thailand on manioc).

The U.S. agreements are heavily concentrated in steel products and textiles and clothing not covered by the MFA. The Third World countries are most seriously affected by the VERs on steel products: the primary targets include Argentina, Brazil, Korea, Mexico, Venezuela and Yugoslavia.

Use of VERs, UNCTAD notes, has also grown strongly during the 1980's, since some policy-makers regard them as practical tools which can be implemented without legislative action and, in some cases, without direct government involvement through industry-to-industry agreements.

VERs also spread in two directions: country demanding such protection might expand the arrangements to cover previously unrestrained exporters and, as exports are diverted to other markets, other countries impose restrictions.

The EEC trade coverage of VERs with the Third World increased from 0.4 percent of trade in 1981 to 2.4 percent in 1988, while that for the U.S. has grown steadily from 8.9 percent to 10.4 percent in 1988, UNCTAD notes.

VERs, UNCTAD points out, leads to increasing prices for the products in the imparting country and reduced export volumes for restrained exporters.

The extents to which Third World exporters suffer short-term losses depend on the relative size of the movements in volumes and prices. In any case consumers in ICs lose as they are forced to pay higher prices for finished products.

Introduced as temporary measures, a number of them subsequently were eliminated.

But the initially temporary VERs in textile sector in the 1950's were replaced by longer term arrangements, renewed and extended under the MFA which has been in existence for 15 years.

The major contributor to the recent growth of VERs of the U.S. is the policy to assure domestic steel industry that imports will not account for more than 18.5 percent of domestic markets. Begun in 1984, this policy has been extended up to 1992.

Agreements of the U.S. now cover counties in Europe, including Eastern Europe, Asia Latin America, Australia, Canada and South Africa. The future of this policy is also uncertain and, "failure to phase out effectively the steel VER programme might result in the steel VERs becoming as ingrained in the trading environment as the MFA", UNCTAD warns.

VERs applied to trade products of "mature" industries imply that new productive capacity in emerging supplier country is not allowed to phase out hig-cost producers in importing countries.

VERs have also been appearing in more dynamic sectors such as consumer electronics and the application of VERs in growing industries may make entry of emerging suppliers difficult, and Third World exporters may find it impossible to penetrate the markets at a later date.

Analysing structural adjustment involving Third World countries in four industries (iron and steel, automobiles and components, consumer electronics, and textiles and clothing), UNCTAD notes that these branches account for more than half of the Third World's export increase during the 1980’s, but industries subject to major adjusment pressures.

Despite strong export growth, import penetration of steel in Ics by Third World countries as a whole remains marginal - ranging from 0.4 percent in UK to 3.5 percent in the U.S. - largely on account of proliferating non-tariff measures.

In the automobiles and components import penetration by Third World countries is again marginal. VERs by the U.S. and some EEC member-states has generally been directed at Japan. But their sensitivity to imports from Third World countries has increased - as evidenced by temporary application of anti-dumping measures against cars from Korea by Canada.

In consumer electronics, several Third World countries (Korea, Taiwan, Singapore, Malaysia and Hong Kong) have emerged as important exporters, supplying about a quarter of world exports, with Latin American countries (mainly Brazil and Mexico) accounting for another three percent.

Third World penetration of North American and West European markets has risen significantly in the 1980’s. But an important portion of this trade is intra-firm transactions of TNCs and sub-contracting operations.

Government policies in the EEC and the U.S. have included increasing resort to VERs and other protectionist measures on imports of some products, particularly the more sophisticated new products like compact disc players and video-cassette-recorders. AD measures have also become more frequent on imports of TV sets and a range of electronic goods mainly from Japan, other ICs, Korea, Hong Kong and Singapore.

In Textiles and Clothing, shifts in production shares from ICs to Third World and socialist countries have been accentuated by the stagnation of the textile industry and contraction of the clothing industry in the ICs.

During the 80's, policies of ICs towards imports of textiles and clothing have been "the most restrictive among all industrial sectors". Bilateral quotas and VERs under the MFA ghavespread rapidly to new countries and products, as soon as such exports have emerged, and have been triggered by lower market shares than in the 1970's. Additional VERs and comparable undertakings outside the MFA have also spread rapidly. In addition, tariffs are still high in most ICs and exclusions, ceilings, tariff quotas and the like limit GSP benefits. There have also been recourse to AD actions despite the MFA.