The nature of the protection could be different this time. But my guess is that the old forms will still prevail. It’s true that members of WTO (almost all governments) have less room to manipulate entry to markets today than they had during the 1980s downturns.This could see them adopt more sophisticated protection, in the sense of being harder to see, not based on traditional border regulations and highly discretionary so the barriers can be raised or lowered as needed.
But there is still sufficient wiggle-roomin the WTO obligations of many governments to allow them to rely on some of the old stand-by methods. In this post and the next, I will outline five easy options, in ascending order of likelihood, for ‘wiggle-room’ protection.
1. Tariffs and services barriers
Tariff increases and new services barriers are still on the cards for the developing countries that make up three-quarters of the WTO membership. Governments in India, Africa and Latin America, especially (less in East Asia; not at all in China) have ample room to raise tariff protection on goods without consultation or retaliation under their WTO contracts. This wiggle-room—known as ‘water in the tariff’ or sometimes ‘binding overhang’—is available because the rates of duty these governments bound in their WTO contracts are much higher than the rates of duty they currently apply. They can increase protection without breaching the contract. But several of these countries (India, not so much) also have ‘free trade agreements’ (FTAs) outside of WTO that restrain them from raising applied levels of duty on imports from their most important trading partners.
|Table: Agriculture tariffs: apparent bound rate overhang|
|Country||Avg. MFN tariff||Avg. bound duty||Bound duty ‘overhang’|
|Trinidad and Tobago||19.1||100||80.9|
|Extract from WTO Market Access: Unfinished Business Special Studies #6, table III.5|
Few developing countries have broad obligations to maintain open services markets under the GATS. Industrialized countries have more extensive obligations; although, mostly, they have agreed not to cut back on services market access that they already permitted in the mid-1990s. Many of the obligations have, in any case, been made redundant by technical and commercial changes in fast evolving markets such as telecommunications and banking. No country has accepted meaningful obligations to free-up the movement of workers. Some industrialized countries have wide-ranging and effective FTAs in services; but almost no developing country does.
Bottom line: tariff increases are an option for developing countries, but offer limited flexibility. All governments have some flexibility to cut back on entry to services markets, but it is questionable whether there is much demand for restrictions on finance, or telecomms, or transport flows.
Subsidies to production of manufactures or subsidies on export for agriculture remain an option for the richest countries, as the EC showed recently when it restored the subsidies on milk-products. Most of the world, however, cannot afford this. Those governments that are throwing around buckets of cash in the name of macro-economic ‘stimulus’ will be trying to keep consumption humming along, not inflating market-prices to higher levels, as the EC does in agriculture.
p>EC Agriculture Commissioner, Marion Fischer Boel, <a href=”http://blogs.ec.europa.eu/fischer-boel/dairy-export-refunds/” title=”Mariann Fischer Boel