Signs of improvement but new policy concerns

Updated: Jun 28 2014, 06:43am hrs
How countries apply their trade policies has been of heightened interest since the early days of the Great Recession. While applied import tariffs have proven resilient to change, the temporary trade barriers of anti-dumping, safeguards and countervailing duties have become important to understanding the year-to-year churning that arises under modern commercial policy. We summarise evidence from the World Banks Temporary Trade Barriers Databasethat has been newly updated with data through 2013for more than 25 major economies.

The leading indicator of forthcoming import protection involves government decisions to initiate new temporary trade barrier (TTB) investigations. Governments initiate such investigations after receiving petitions filed either by a domestic industry or by a labour group claiming to suffer injury from import competition.

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A substantial body of research across a number of high-income and emerging economies links these indicators to weakness in the underlying macroeconomic climate. Import protection has been shown to follow declines in domestic real GDP growth, increases in the unemployment rate, and real exchange rate appreciations. Further, among the relatively limited increases in import protection on aggregate witnessed during the Great Recessionincluding through tariff policiesTTBs turn out to have been some of the most economically meaningful.

Overall, the major economies experienced a relatively low share of their imports becoming subject to new TTB investigations. The evidence for both the G20 high income countries and emerging economies is that there were low levels of flow of potential new import protection arising in 2013.

Furthermore, 18 of the 28 countries listed in table 1 had a smaller share of imported products in 2013 involved in new investigations than the countrys annual average over 1995-2012. In fact, only Brazil, India, and the US had 0.5% or more of their products become subject to new investigations in 2013, and these are countries for which such higher levels are not atypical.

The second piece of goods news is evidence that cumulative levels of imposed TTB import protection in 2013 remained relatively flat or even declined slightly in comparison with 2012. A decline occurs when the share of imports covered by the TTBs being removed is larger than the share covered by the TTBs that are newly imposed.

Table 1 indicates that 14 out of 27 countries reported declines (or stagnant levels) in 2013 relative to 2012, and most of the 13 other reported slight increases.

By removing previously-imposed TTBs covering a large share of imports, countries like Turkey and the US actually did much better in 2013 than simply maintaining the status quo. Turkey finally removed safeguards on steam irons and vacuum cleaners (imposed since 2006) and cotton yarn (imposed since 2008). The US finally removed anti-dumping and/or countervailing duties on salmon from Norway (imposed since 1992), steel plate from Italy and Japan (imposed since 2000), honey from Argentina (imposed since 2001), and orange juice from Brazil (imposed since 2006), among others.

Peru is the only country for which there is evidence of a substantial increase in TTB import coverage in 2013. Perus increase was due to a significant set of new anti-dumping import restrictions imposed on textiles and apparel imports from China.

A lingering concern for policymakers is that more imports in 2013 remain covered by TTB protection than was the case in 2007, the year prior to the onset of the Great Recession.

The G20 economies used TTBs to collectively cover a 33% higher share of imports than in 2007. G20 emerging economies have imports covered by TTBs at a rate that is nearly 50% higher in 2013 than in 2007, whereas the level is only 13% higher for G20 high-income economies.

At the country level, table 1 indicates that Argentina, India, Indonesia, Peru and the US are covering more than one full percentage point of their import products with TTBs in 2013 than in 2007. Among the major TTB users in the G20, only China, the EU, Mexico and South Africa had lower levels of import coverage in 2013 than in 2007.

While TTB import protection levels may be levelling off, it is worth recalling that the incidence of imposed TTBs is not evenly spread across exporting countries. Historically, the exporters targeted by TTBs are typically the newest entrants into global markets. Beginning in the 1980s, it was exporters from Japan, South Korea, Taiwan, China and other Asian nations. In the 1990s and the first decade of the 2000s, exporters from China were the policy focus.

While a number of these countries remain prominent targets, table 2 lists some new additions. Emerging economies such as Ukraine, Russia, India, Macedonia and Moldova, for example, each also have more than 2% of their non-oil exports to the G20 import markets subject to TTBs in 2013.

The most pressing issue that many trade policymakers confront is how to ensure that previously imposed TTBs are unwound on schedule. This is worrying given the higher levels of 2013 TTB coverage in comparison to 2007, and that many of the TTBs imposed during the early phase of the Great Recession are now up for review.

In terms of specific policy instruments, most of the recently imposed safeguards have now been eliminatedsee, for example, Turkeys policy removals described above. Exceptions include India and Indonesia, where economically significant safeguards remain imposed.

Anti-dumping is the culprit behind most of the remaining TTBs in place as of 2013. Nevertheless, dozens of anti-dumping sunset review investigationsthe decision point for whether a particular import restriction is to be removedare set to take place over the next three years, at the five year mark after their initial import restriction was imposed. Trade policy monitors must watch these upcoming anti-dumping sunset reviews investigations with vigilance.

Newly arriving evidence for 2013 suggests that, after almost continuous increases beginning with the onset of the Great Recession in 2008, overall levels of TTB-import protection may have finally peaked.

Whether a symmetric winding down of the TTBs imposed during the Great Recession takes place will depend on how seriously policymakers treat the anti-dumping sunset review process over the next three years. Their failure to terminate these temporary trade barriers on time would prove a black eye for the multilateral trading systems otherwise stalwart response to the Great Recession.

Chad P Bown

www.VoxEU.org