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World

Protectionism through the back door

Many countries are battening the hatches in response to the financial crisis. Protectionism is on the rise worldwide - a recent study names 400 measures that hampered free trade over the past 12 months alone.

In the wake of the financial crisis, free trade as a concept has been facing increasing opposition. Governments tend to protect their companies from international competition when the economy slides. Protectionism is on the rise again, according to the Global Trade Alert (GTA) report by independent economists at St Gallen University in Switzerland and the British Centre for Economic Policy Research. The trade monitoring group has been publishing its findings on global protectionist measures annually since 2008.

Low-key protectionism

The report sees a "quiet, wide-ranging assault on the commercial level playing field." Measures taken since the fall of 2012 by far surpass anything that occurred since the crisis broke, according to GTA member and advisor Martin Wermelinger: "The type of protectionism has changed considerably" - because of the World Trade Organization, traditional trade barriers are employed less often than before.

A pharmacist is seen working in a lab where medicines are being produced at a Cipla manufacturing unit on the outskirts of Mumbai, (Foto:Rafiq Maqbool/AP/dapd)

Many countries want to protect their industries against competition from abroad

For decades, the WTO has tried to free trade from barriers. Despite failure of the most recent round of negotiations, the Doha Round, the fact remains that governments which introduce traditional barriers like tariffs and other protective measures risk being hauled before the WTO. As a result, governments protect their economies in such a way that trade partners, the media and analysts do not notice the obstacles. Exports are subsidized, financial aid or incentives, including export guarantees, are offered. Restricting migration is a new measure, Wermelinger told Deutsche Welle. "There was a huge increase in 2012. Canada and Asian nations like India introduced temporary measures under which they admit fewer people who might work there."

More bilateral accords

Free trade agreements are still being signed, despite such protective measures - but increasingly on a bilateral level. This year, 2013, may see the birth of a new free trade zone between Europe and the US. That is better than nothing after the failure of the Doha Round, says Ilja Nothnagel, foreign trade expert at the German Chambers of Industry and Commerce (DIHK). It is very difficult at present to make progress on a multilateral level, he told DW. "And bilateral is better than not at all."

Federal Councillor and Head of the Federal Department of Economic Affairs of Switzerland Johann Schneider-Ammann (2nd L) and Chinese Minister of Commerce Gao Hucheng (2nd R) attend a signing ceremony in Beijing on July 6,2013. China and Switzerland signed a free trade agreement -- Beijing's first with a contintental European country -- in a deal reached against the backdrop of trade tensions between the Asian giant and the European Union. AFP PHOTO / WANG ZHAO (Photo credit should read WANG ZHAO/AFP/Getty Images)

Bilateral agreements have become more frequent, as here between China and Switzerland

Wermelinger is critical of bilateral free trade accords, however, arguing they function only in a regionally limited area, if at all. "Bilateral agreements are a kind of protectionism toward states that are not partner to the accord." Companies from countries that are not signatories to the accord are pushed out of the market, Wermelinger said, even if they offer better products. Bilateral accords usually only apply to import tariffs and do not necessarily preclude other protectionist measures.

Large countries suffer

GTA statistics for the past 12 months show 141 measures were instituted to boost trade worldwide, compared to 431 new protectionist measures. Another 183 are currently being prepared. For the most part, protective barriers are put up by the leading trade nations, all of them G20 member states. Global Trade Alert does not specify to what extent trade is limited by protectionism - just that China is hit most often by the measures, followed by the US and European countries including Germany, France and Italy.

"The astonishing thing is that the biggest countries are also the leaders in protectionism," says Wermelinger. "The G20 countries are responsible for 65 percent of the protectionist measures, and at the same time, they are the countries which are the worst affected by protectionism."

He says the big countries shouldn't assume that their markets are so important that no-one would take up a position against them. They should take the Doha Round seriously and insist on multilateral negotiations.

Germans in a fairly good position

Tens of thousands of South Korean protesters participate during a rally held against Free Trade Agreement between the United States and South Korea at downtown of Seoul, South Korea, Sunday, Nov. 11, 2007. (ddp images/AP Photo/Lee Jin-man)

Free trade agreements often meet with widespread opposition, for example, in South Korea

Nothnagel also sees the increase in trade restrictions as bad for everyone: "All companies in principle suffer from protectionist measures - even those which are supposed to be protected by them." They become themselves less able to compete because they are protected from competition, and in the long run they lose market share.

As far as the non-tariff barriers are concerned, it's small and medium sized businesses which are more seriously affected rather than the big companies. They don't export as often, so the administrative cost for each item is higher. "If you only export one machine a year," says Nothnagel, "that takes more effort than if you export 40 of them."

All the same, in one way, German companies are less affected than others: "German companies gain their competitive edge from their quality and service rather than from their price," says Nothnagel. "So we have a small advantage as to our export structure."

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