PROTECTIONISM – BAD MEDICINE, WRONG DIAGNOSIS

By Benedetto della Vedova and - - Reprint | | Print |

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BRUSSELS, Jan 2 2003 (IPS) - A phantom is stalking the globalised world and threatening to turn back history: protectionism, which made a big comeback in 2002, writes Benedetto della Vedova, a deputy in the European Parliament for the Transnational Radical Party. US president George W. Bush was the first to try this dance, beginning with tariffs on steel and then gigantic subsidies for agriculture. But the protectionist wind is blowing in Europe too (and not only in agriculture) where the economic crisis is provoking calls for state intervention and trade protectionism. Given that the transferral of traditional industries and production of intermediate goods to countries with lower production costs have benefitted, not harmed, the industrialised countries, Vedova argues that their invocation of protectionist policy is indefensible. The author agues that the industrialised countries should accept, whatever the consequences, the challenge of achieving production excellence in keeping with the new international division of labour. To do so it is necessary to renew systems that have aged to the verge of paralysis and make major investments in research and development. Financing for these changes could come in part from agricultural subsidies, which devour over 40 percent of the EU budget and force European consumers to spend far more one food than they would in a free market.

The president’s new ”fast track” trade authority (which allows the White House to negotiate trade treaties and submit them for an up-or-down vote by congress) was counterbalanced by the introduction of so many social and environmental clauses that, according to the Cato Institute, an influential Republican think tank, it will end up restricting trade rather than bolstering it.

This is the first time in decades that trade barriers have risen instead of fallen. In 2001 world trade actually declined –and not only as a result of September 11– and prospects remain dim, though it is expected that 2002 will show a modest rebound.

Only time will tell if Bush’s move to protectionism is a tactical decision made for electoral goals or if his administration actually believes the motto of protectionism: ”Trade is good but imports are bad.”

In the short term this shift might produce benefits for the big lobbies –business and union both– of the textile, steel, and agriculture sectors on both sides of the North Atlantic. But it will not benefit the economy or western consumers, or the hundreds of millions of workers in developing countries who were able to take advantage of opportunities provided by economic globalisation.

A few weeks ago, Bush’s all-powerful trade negotiator, Robert Zoellick, presented a plan for a gradual across-the-board elimination of tariffs on manufactured goods by 2015. The proposal was received with scepticism by many countries given Bush’s extremely poor record on the issue thus far.

Had the announcement been accompanied by concrete actions in the US and abroad, it would be have seen as a positive sign. But the protectionist wind is blowing in Europe too, and not only in the impregnable fortress of Community Agricultural Policy. The economic crisis is provoking a series of calls for state intervention and trade protectionism which use arguments much like those from the anti-globalisation movement. For example: the costs of western production include rights and protections that justly protect the workers and citizens of this region; in contrast, production in recently industrialised countries are free of these costs because there aren’t the same protections and rights, which makes competition inherently unfair. According to this reasoning, if a valve produced in Italy costs 100 and an identical one produced in Asia costs 10, the situation is intolerable and must be corrected by European protectionism.

This is dangerous and mistaken reasoning. To refute it there’s no need bring in Adam Smith and David Ricardo and their theory of competitive advantage; it is enough to simply observe reality, which is indubitably hard, though not because of valves.

An interesting perspective can be found in the 2002 report of UNCTAD, the UN agency for trade and development. The report shows that the increase of quotas on the total world exports of manufactured goods is not proportional to the value added, the sector in which transnational corporations, mostly European and American, continue to overwhelmingly dominate. Therefore the transferral of traditional industries and production of intermediate goods to countries with lower production costs have benefitted, not harmed, the industrialised countries.

The invocation of protectionist policy by the industrialised countries is thus indefensible. Moreover, it would constitute a grave strategic error in calculation on the part of European Union members regarding the widening of the EU. The integration into the euro zone of millions of workers from the new member countries implies a definitive acceptance that from tomorrow on for a country like Italy valves won’t be produced in Lombardy or Piedmont but in Hungry or Poland, or later in Turkey.

Instead of looking to the past and taking refuge in illusory protectionist policies, it would be better if the industrialised countries accepted, whatever the consequences, the challenge of achieving production excellence in keeping with the new international division of labour. To do so it is necessary to renew systems that have aged to the verge of paralysis and make major investments in research and development. Financing for these changes could come in part from agricultural subsidies, which devour over 40 percent of the EU budget and force European consumers to spend far more one food than they would in a free market. (END/COPYRIGHT IPS)