In contrast to the extensive pattern of trade barriers erected in the 1930s, the postwar period was, generally, one of progressive movement toward a liberal world trading system. This process, which began with the series of conferences convened in 1944–48 at the initiative of the United States, culminated in the coming into force of the General Agreement on Tariffs and Trade (gatt). The gatt was based on the premise that international cooperation, an agreed code of conduct, and a stable framework were essential to prevent the pursuit of narrow national interests that would lead to the escalation of trade restrictions and eventually to a decline in the volume of trade, and it represented a major step toward replacing the severely constrained trade relations characteristic of the interwar period with a system founded on reciprocity and nondiscrimination, a set of ground rules for international trade, and a mechanism for further trade liberalization.
Barriers to trade were successively reduced in six rounds of multilateral trade negotiations, and by the end of the Kennedy Round (1964–67) the weighted average tariff for the major trading nations had been reduced to 7.7 per cent on all industrial products, 9.8 per cent on finished manufactured products, 8 per cent on semifinished products, and 2 per cent on raw materials. In spite of the restrictions still in effect—such as those applied to a large part of the agricultural sector,1 the remaining tariffs on industrial goods and raw materials, and a variety of nontariff barriers—the situation after the Kennedy Round could be characterized as a liberal world trading system with a substantially free exchange of goods, internationally negotiated bound tariffs2 on the greater part of world trade, and a considerable degree of certainty and stability with respect to the general conditions for international trade. The postwar movement toward liberalism in trade, complemented by a stable monetary framework, fostered an unprecedented, sixfold rise in the volume of international trade between 1948 and 1973.
Against this background, there have been growing concerns about a retreat from the liberal trading system in recent years. It may seem somewhat paradoxical that these concerns have coincided with new international efforts to liberalize trade and improve the rules governing world trade in the context of the Tokyo Round of the multilateral trade negotiations, which were formally launched in September 1973 and have been pursued intensively since early 1975. But in fact, the agreement of major trading nations to enter into a new round of negotiations was in part motivated by fears of a major lapse into protectionism. Following the breakdown of the 1971 Smithsonian agreement on exchange rates, there was considerable concern that, in view of the uncertainties associated with the absence of effective rules on exchange arrangements and with balance of payments problems, countries might resort to trade restrictions. These fears were sharpened in the wake of the external adjustment problems related to the oil crisis of 1973 and the onset of the worldwide recession in 1974. In January 1974 the Committee of Twenty, in a communiqué issued at the close of its meeting in Rome, stressed the importance of avoiding an escalation of restrictions on trade and payments.3 In May of the same year the member countries of the Organization for Economic Cooperation and Development (oecd) adopted a declaration expressing their determination to avoid resort to import restrictions and similar measures, a declaration that has been renewed annually since then.
Despite these actions, concerns about a drift toward protectionism have continued to mount and have come from many quarters, including public officials in both developed and developing countries and representatives of international economic institutions. The International Monetary Fund, in its Annual Report for 1977, said that “the persistence of such [protectionist] pressures, as evident from rising protectionist sentiments in particular industries in some industrial countries, continues to be cause for serious concern. If the forces of protectionism are not resisted, the resort to restrictions on trade would harm the open international trading system; it would not provide any real solution to the economic problems confronting the industrial economies and could have effects destructive of prosperity in the world economy.” 4
In September 1977, a report by the gatt secretariat warned that the spread of protectionist pressures had reached a point where “the continued existence of an international order based on agreed and observed rules may be said to be open to question.” 5 In the United Nations Conference on Trade and Development (Unctad), the effects of protectionism on developing countries were emphasized: “Whatever progress has been achieved [in liberalizing trade barriers by some developed market economy countries] seems, however, to have been more than offset by the intensification of existing restrictions or the introduction of new restrictions, which also adversely affect exports of developing countries.” 6
At the 1977 annual meetings of the International Monetary Fund and the World Bank, concern over the rise of protectionism was virtually universal. The Managing Director of the Fund, the President of the World Bank, the Director-General of the gatt, the Chairman of the Interim Committee of the Fund, the Chairman of the Development Committee of the Bank and the Fund,7 and the representatives of numerous governments, both of developed and of developing countries, all addressed themselves to the problem of protectionism.
In November 1977, the seriousness of the problem was highlighted by publication of the gatt secretariat’s estimate that 3 to 5 per cent of world trade, or some US$30–50 billion, was “being adversely affected by import restrictions introduced, or seriously threatened, by the industrially-advanced countries.”8 While this estimate was a measure not of trade loss but of the portion of trade that was being made subject to new restrictions (and did not take into account the impact of the recession), the potential for loss appears quite significant.9
Protectionism and the Rules Governing World Trade
The framework—economic, legal, and institutional—within which most international trade takes place consists of the rules set out in the gatt. The fundamental component of this framework is a negotiated balance of mutual tariff concessions among contracting parties which commit themselves not to raise import tariffs above the negotiated rates bound in the schedules of concessions annexed to the gatt. The bound tariff rates negotiated are generalized to all contracting parties through the most-favored-nation principle. While aiming at “developing the full use of the resources of the world and expanding the production and exchange of goods,” 10 the gatt does not explicitly envision full liberalization of all tariff and nontariff trade barriers, and the emphasis throughout is on “reciprocal” and “mutually advantageous” arrangements among contracting parties. Thus, the present world trading order accepts protection of domestic industries through the use of tariffs, subject only to the proviso that any increase in bound tariffs shall be subject to certain well-defined safeguards which ensure that the legitimate interests of other trading nations are not adversely affected.
The gatt also contains provisions prohibiting or limiting contracting parties’ use of nontariff barriers to trade. These provisions include some exemptions, but only for reasons not directly related to the need to protect local industry. Although quantitative import restrictions on industrial products have been substantially liberalized since the inception of the gatt, the lowering of other nontariff barriers has proved more difficult: even the identification of such barriers is often a complex matter, and trading nations frequently have differing views on whether a particular practice represents a legitimate domestic measure or a form of protection in its intent or application.
In order to provide safeguards against injurious import competition resulting from the progressive liberalization of international trade, the gatt authorizes the importing country to suspend temporarily, or to reverse, its trade liberalization policy in certain narrowly circumscribed situations. If, as a result of unforeseen developments and the effect of the obligations incurred by an importing country under the gatt, increased imports of a product cause or threaten to cause serious injury to domestic industry, the country may introduce tariff or nontariff restrictions on such imports “for such time as may be necessary” to remedy the problem.11
In practice, contracting parties to the gatt have invoked the “escape clause” provisions rather infrequently, and the possible ways of making these provisions more effective are currently under consideration in the multilateral trade negotiations. However, analogous “escape clause” actions, under national or regional legislation and without invoking the gatt provisions, have been utilized frequently.
The gatt also provides that importing countries may take compensating action against trading partners found to be dumping goods in their markets or expanding sales through subsidization of their exports. The importing country may impose antidumping duties whenever and to the extent that the sale of imported goods takes place in the importing country’s market at less than its “normal value” and results in material injury to the domestic industry. In an analogous fashion, an importing country may impose countervailing duties on goods benefiting from production or export subsidies in the exporting country when these result in material injury to the domestic industry. In both cases, the fundamental objective is to provide legal grounds for affected countries to take offsetting measures when faced with dumping or subsidization. However, antidumping or countervailing duties that are considered as being consistent with the gatt are not to result in net additional protection of the affected industry in the importing country, since these duties are not to be imposed at rates higher than would be necessary to offset the margin of dumping or subsidization.
In practice, the effectiveness of procedures for justification of restrictive measures under gatt rules often depends to a considerable extent on the policies of the restricting country and the affected country. In the absence of voluntary recourse to gatt provisions by these countries, or of protests by third countries whose interests may also be adversely affected (e.g., by the diversion of exports from the traditional trading partners to third markets), restrictive actions may not be brought formally to the notice of the gatt. Thus, trading nations wishing to do so may, at least for the considerable intervals between successive rounds of trade negotiations, effectively choose to adopt actions which, while not necessarily contrary to the letter of the gatt, may be in violation of its overall objectives. Eventually some of these “extralegal” actions may be brought within the purview of the gatt in subsequent trade negotiations.
Because of the complexities involved in judging restrictive trade actions in terms of the law and practice of the gatt, this study makes no attempt to assess the appropriateness and justification of restrictive actions in terms of gatt rules, although, where relevant, information is given as to whether particular actions have been justified by the restricting country in terms of the various gatt provisions. In particular, no attempt has been made to assess the legality of trade actions taken under the “escape clause,” antidumping, and countervailing duty provisions.
Scope of This Study
A comprehensive study of protectionism would cover restrictive trade measures adopted by all countries. For a variety of reasons, however, including availability of information, a selective approach has been adopted in this study. Thus, while various types of restrictive trade actions have been taken by a great many countries in recent years, this study focuses on the measures adopted by the principal industrial nations that are also major world traders, on the grounds that the trade actions of these countries have the greatest impact on international trade. Accordingly, a review has been made of the restrictive trade actions taken by Canada, the European Economic Community (eec),12 Japan, and the United States, in general since 1971 but more particularly in the years 1974–77. This group represents about 60 per cent of total world imports, and although the major portion of world trade is carried out within this group, many smaller countries—especially developing countries—are highly dependent on exports to these markets. An attempt has also been made to review the impact of restrictive trade actions by the industrial countries on some developing countries.13
While a selective approach has been adopted as to country coverage, it is important to recognize that the problems of restrictive trade actions and their impact are much broader. First, there is considerable evidence of restrictive trade actions having been taken during the period under review by industrial countries other than those mentioned above. Second, trade restrictions have been adopted by many developing countries, including some that are relatively more developed and whose actions have an important impact on the trade of other developing countries. It must also be realized that protectionist trade measures cannot be analyzed adequately by examining the effects of actions by one group of countries (e.g., industrial nations) on another group (e.g., developing countries), as witness the fact that trade actions by industrial countries have an important impact on the trade of the other industrial countries.
This study does not attempt to describe, appraise, or compare the general level of protection as such, including existing obstacles to trade, the structure of protection, and the phenomenon of effective protection. As already indicated, it is, rather, the recent changes in restrictions affecting imports that constitute the main focus of the study: trade actions contemplated or implemented since 1971 and, more particularly, in the years 1974–77. Moreover, an attempt has not been made to carry out a comprehensive review of all trade measures taken by the countries surveyed, but rather to review the more important ones. Much of the information is presented in summary form and consequently should be considered as illustrative rather than as a complete inventory of trade actions.
Finally, no attempt has been made to quantify the increase in protectionism. Any such attempt faces formidable obstacles, given the vast array of trade actions contemplated or taken, the frequently ad hoc, piecemeal, and complex nature of some of them, and the unknown impact of many kinds of trade actions, including the proliferation of “voluntary” restraints on exports.14