I Trade Trends, Policy, and Legislation and Protectionism

Naheed Kirmani, Shailendra Anjaria, and Arne Petersen
Published Date:
July 1985
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Trade Trends

Recent trade developments have been influenced by a number of factors. Recovery of world output commenced in 1983, although growth was uneven among industrial countries. In the developing countries, the recent upturn in activity was influenced by the extent of the economic recovery of their major trading partners. Just as the detrimental effects of the recent recession were not distributed uniformly among sectors, the benefits of the recovery have been uneven across sectors. Substantial amounts of resources remain idle and, with slower growth anticipated in the future, the situation is not expected to improve markedly in the next few years. Unemployment of labor in the major industrial countries, which averaged about 6 percent in 1980–81 and rose to 8 percent in 1982–83, declined to about 7½ percent in 1984. Even in North America, where the unemployment rate dropped in 1984, current unemployment rates remain substantially above historical norms. Trade and current account balances have been affected by the impact of high real interest rates and shifts in exchange rates and developments in commodity prices. While the United States witnessed a sharp increase in its trade deficit, Japan continued to experience large trade surpluses. The current account surpluses of oil exporting developing countries shrank, while non-oil developing countries faced severe balance of payments and external debt difficulties, though the latter’s situation improved significantly after 1982, partly reflecting their substantial adjustment efforts.

The volume of world trade recovered by about 2 percent in 1983, regaining the level of 1980–8119 (Table 1). Trade in manufactured products rose by 4½ percent, in contrast to the decline in 1982, while agricultural trade increased by 1 percent, matching the 1982 increase. Trade in minerals (including fuels), however, declined for the fourth consecutive year, led by an 8 percent decline in the volume of crude petroleum exports. In 1984, according to preliminary data, world trade expanded by an estimated 9 percent, led by a 12 percent increase in the exports of manufactures.

For the industrial countries as a group, export volumes grew by 2½ percent in 1983, after declining by more than 2 percent in 1982; import volumes increased by nearly 4½ percent in 1983, following three consecutive years of decline. Among the industrial countries, there were large differences in individual country trade performance in 1983. In the United States, for example, export volumes fell by 4 percent in 1983, whereas in Canada and Japan they rose by 9½ and 8½ percent, respectively. On the other hand, U.S. imports rose by 10½ percent, in sharp contrast to the behavior of import volumes into France (which fell by 2 percent) and Italy and Japan (which remained relatively stagnant). In 1984, according to the World Economic Outlook,20 growth of export and import volumes for the industrial countries are estimated at 10 percent and 12½ percent, respectively. U.S. exports in volume terms are estimated to have increased by 8 percent, whereas the growth of U.S. imports in volume terms rose further to 23 percent.

The World Economic Outlook estimates that the drop in export volumes in the developing countries during 1980–82 was arrested in 1983. Largely on account of increased manufactured exports to industrial country markets, export volumes are estimated to have expanded by close to 8 percent in 1984. Import volumes, which expanded significantly in 1980–81, fell in both 1982 and 1983; in 1984, import volumes rose by 2½ percent.

The industrial countries’ share in world exports rose by 1 percentage point to 62 percent between 1980 and 1983. While export shares of the oil exporting developing countries declined by 5 percentage points to 10 percent, those of non-oil developing countries (excluding Eastern trading countries) rose by 2 percentage points to over 14½ percent in 1983. The Eastern trading area also experienced an increase in its share in this period.

The Stance of Trade Policy

Protectionist pressures in most industrial countries in the past several years have been high. An important contributing factor was the world recession; as output stagnated or declined and unemployment rose, demands increased for protection from import competition and for government assistance to sustain exports. The commencement of world recovery did little to ease the pressures for protection. In the European Community, high and rising unemployment rates exacerbated protectionist pressures. Despite strong recovery and reduced unemployment in the United States, protectionist pressures increased discernibly as the recovery and the strong U.S. dollar led to an upsurge in imports. In addition to the effects of cyclical factors on protectionist pressures, shifts in comparative advantage and the related pressure for structural adjustment also played an important role, as did domestic rigidities, which prevented sufficient adjustment of production structures, thus aggravating the problem of structural unemployment.

Governments in industrial countries have made efforts to resist protectionist demands. On balance, however, trade restrictions increased in many industrial countries in the past several years, mainly in the form of discriminatory nontariff barriers, including voluntary export restraints; international trade frictions increased concomitantly.

Examples of U.S. resistance to pressures for protection included rejection of industry petitions for import relief for copper, tuna, footwear, stainless steel flatware, and machine tools. In the case of copper, injury from imports was established, and the U.S. International Trade Commission (USITC) recommended import relief. The United States has not yet acted on demands for more general measures, such as import surcharges and domestic content legislation. The Generalized System of Preferences (GSP) was extended and some of the more protectionist elements were excluded from the final version of the omnibus trade bill. Further, after 1980, restrictions were eased or terminated in several areas, including color televisions, footwear, CB radio receivers, high-carbon ferrochromium, lag screws and bolts, clothespins, porcelain-on-steel cookware, and preserved mushrooms. There were also liberalization moves in a regional context, for example, the Caribbean Basin initiative.

On the other hand, during 1983–84, there was an intensification of existing, and resort to new, U.S. import restrictions on steel, textiles and clothing, and motorcycles, at the same time as earlier restrictions on automobiles were extended.21 A perception which has gained more prominence in U.S. public opinion and greater credence in policy formulation is that trading partners have not shouldered adequate responsibility, concomitant with changing economic strengths, for promoting a liberal multilateral trading system. This perception arises from U.S. concerns about trading partners’ subsidy practices and access to foreign markets, against the background of increasing integration of the U.S. economy with the world economy over the past decade and the consequent greater vulnerability of U.S. industries to foreign competition and external demand conditions. A consequence of this perception has been a tendency in the United States, which has traditionally been a leading proponent of liberal multilateral principles, toward greater acceptance of discriminatory trade measures and a more aggressive endorsement of legal remedies to combat “unfair” competition. At the same time, the United States has sought international cooperation to improve and expand multilateral disciplines and has been a leading proponent of new multilateral trade negotiations.

In the European Community, demands for protection were resisted in a number of areas, such as footwear. Restrictions were eased or terminated in other areas in the past several years, including preserved and cultivated mushrooms, frozen cod fillets, and table-ware. In 1985, the Community accelerated tariff cuts agreed in the Tokyo Round by one year for several hundred products of interest to developing countries and announced that it would do so for other countries, following similar action by the United States. The Community recently announced proposals to liberalize 28 residual nontariff restrictions. The Lomé Convention, under which the ACP (African, Caribbean, and Pacific) countries are granted preferential treatment, was extended, and the Community continued and improved its GSP. Despite intense opposition from farmer lobbies in 1984, the Community took steps toward rationalizing the Common Agricultural Policy. There was also greater emphasis on strengthening the internal market in the Community by, inter alia, harmonizing technical standards and norms which could act as barriers to trade, and rationalizing competition policies, including unauthorized state aids.

During 1980–83, restrictions were tightened or imposed in the Community in several areas (including steel, textiles and clothing) and imports of certain consumer electronics were made subject to export restraints. In 1984, the Community more or less maintained major existing restrictions, rather than resorting to new measures. Pressures for protection in the Community have recently risen in the petrochemical industry, mainly with regard to new suppliers in the Middle East. The Community has so far refrained from quantitative restrictions in this sector; however, consideration is being given to reducing GSP benefits for countries, including Saudi Arabia, which are becoming competitive petrochemical exporters. Recourse to Article 115 actions22 continues; the coverage of import surveillance has increased.

In the Community, the acceptance of discriminatory trade measures has reflected an evolving process whereby bilateral accommodation and management of trade have received relatively greater emphasis as an inevitable and pragmatic approach to economic “realities.” Of course, views vary considerably in this respect within the Community, and, in the overall compromises that are reached, there is a dilution of the more liberal trade views and a brake on the more restrictive ones. Some members, particularly the Federal Republic of Germany, strongly support new multilateral trade negotiations, while the Community as a whole has recently expressed greater willingness to investigate the possibilities of such a new round.

In the past several years, trade policy in Japan has focused on liberalization measures. In response to trading partners’ complaints that its market was unduly closed to foreign competition by tariff—and, more important, hidden nontariff—measures, Japan has undertaken a series of market-opening measures. These entail accelerating the cuts agreed in the Tokyo Round in the December 1981 package (1,653 items), the October 1983 package (1,280 items), and the April and December 1984 packages (1,205 items). In addition, tariffs were reduced or eliminated on 215 other items in May 1982, 86 items in January 1983, 44 items in October 1983, 76 items in April 1984, and 11 items in December 1984. The packages led to a substantial simplification of standards and testing requirements; measures in this area were included in all packages, with the most important changes in the January 1983 package, on the basis of which revisions were made in 16 regulatory statutes in March of that year to establish the principle of nondiscriminatory treatment of foreign products in approval procedures.

Other potentially significant commitments undertaken by Japan included arrangements for foreign participation in standards drafting committees (May 1982) and the acceptance of foreign-generated test data in certain sectors (April 1984). Measures were also implemented to facilitate import penetration by products such as tobacco (January and October 1983 and April 1984) and telecommunications equipment and satellites (April 1984). Additional measures included the establishment of an Office of Trade Ombudsman (December 1981), the enhancement of the import promotion function of the Japan External Trade Organization (October 1983), the promotion of procurement of imported goods by government and other public sector entities (October 1983), and an increase in the ceiling quotas for industrial products under the GSP by 55 percent in 1984/85 (October 1983) and 8 percent in 1985/86 (December 1984). Japan has strongly supported the launching of new multilateral trade negotiations.

The short-term impact on trade flows of industrial countries’ recent trade policies—whether more restrictive or more liberal—is more difficult to assess. For example, even while U.S. trade policy was becoming somewhat more restrictive, the substantially higher exports to the United States were contributing to renewed growth in its industrial and developing country trading partners. On the other hand, trade liberalization in Japan has not yet induced a concomitant impact on import flows into Japan. This partly reflects the different domestic demand conditions, with the demand effect swamping the trade policy effect. In the case of Japan, while the liberalization measures have been generally welcomed, trading partners continue to express concern about difficulties in penetrating the Japanese market and have called for further liberalization.23

Selected Recent Legislation

Recently, there has been an increased tendency in industrial countries to broaden and sharpen trade legislation, particularly in order to deal with “unfair” foreign competition. Some examples are discussed below. While the impact of recent legislative changes will depend on how they are implemented, they broadly signal a tightening of the trade policy stance, particularly with regard to “unfair” foreign competition.

The 1984 Trade and Tariff Act of the United States (“the Act”) extends the GSP, which would have expired in January 1985, for eight and a half years.24 The President is authorized to negotiate bilateral trade liberalization agreements, with specific authority for negotiations with Israel and Canada. Authority is also provided for negotiation of bilateral and multilateral liberalization of trade in services and high technology products and in trade-distorting barriers to foreign direct investment. The law clarifies the President’s authority to retaliate against discriminatory foreign practices that affect U.S. trade in services and expands his authority to act against unfair foreign practices in the area of direct investment.

The Act clarifies, codifies, and extends the reach of antidumping and countervailing duty laws. Its provisions include the possibility of applying countervailing duties to “upstream subsidies” on manufactured imports25 and the extension of antidumping and countervailing duty laws to cover sales that are “likely” to take place.26 In determining material injury, the USITC is required to assess the “cumulative” impact of imports of similar products from all countries under investigation. The USITC is also instructed not to consider any one factor as overriding in determining whether to recommend import relief; specifically, profitability of the domestic industry will not be taken to preclude a finding of injury by imports.27

In September 1984, the European Community adopted the New Commercial Policy Instrument (NCPI), whose basic objectives are to enable the Community to respond rapidly and efficiently to “illicit” foreign commercial practices and to exercise fully its “rights” in trading relations with nonmembers. “Illicit” commercial practices are defined as any practices that are incompatible with international law or with generally accepted rules, including infringement of any code or regulation agreed in the context of the GATT, the OECD, or any other international intergovernmental institution. The Community’s “rights” are defined as those international trade rights of which it may avail itself either under international law or under generally accepted rules. This applies in situations where a Community member believes that its access to the markets of another country may have been unfairly cut back, not as a result of an illicit trade practice, but of a decision to resort to safeguard or other protective measures which that country deemed to be justified under the GATT.

The NCPI lays down procedures for investigating illicit trading practices.28 If a complaint is upheld by the GATT or other appropriate international institution, the Council of Ministers may decide on defensive policy measures that must be consistent with the European Community’s international obligations.

With regard to the exercise of commercial rights, whenever a Community member state believes that a third country’s policies are detrimental to the member’s export trade, it can request the Commission to investigate the matter. The Commission, satisfied that the request is justified, will seek accommodation with the concerned country or in the relevant international institution; however, the Council of Ministers, in contrast to the procedures relating to illicit trading practices, must specifically approve the initiation of consultations or of dispute settlement procedures.

The policy measures envisaged by the NCPI include withdrawal of concessions, higher tariffs or other import charges, and introduction of quantitative or other restrictions. The NCPI will not apply in cases covered by existing rules in the common commercial policy. It will not, for example, replace procedures with respect to dumping and subsidies.

New Community legislation on dumped or subsidized imports from countries outside the Community became effective on August 1, 1984. Provisions clarifying the Community’s practices on dumping and subsidies relate to the treatment of associated parties, the reference period for the determination of dumping or subsidization, the allowance to be made for differences in the conditions and terms of sale, the remission or refund of import charges and indirect taxes, and the introduction of time limits within which undertakings can be given.

Canada’s Special Import Measures Act (SIMA), which replaces the Anti-Dumping Act, came into effect on December 1, 1984, and deals with unfair and injurious practices of foreign producers. Under its provisions, procedures are established to handle antidumping and antisubsidy complaints; these are designed to simplify and expedite the processing of such complaints.29 Under SIMA, Revenue Canada is responsible for investigating complaints to determine whether goods imported into Canada are being dumped or subsidized. Based on a preliminary determination of dumping or subsidization, Revenue Canada can impose provisional duties on the imports under investigation. To initiate an investigation and to make a preliminary determination, Revenue Canada must be satisfied that there is some evidence that the dumped or subsidized imports are causing material injury to Canadian producers; otherwise, it will not initiate the investigation or will terminate it, as the case may be. Up to the making of a preliminary determination, Revenue Canada may also accept undertakings from foreign exporters, or foreign governments in subsidy cases, which would eliminate the dumping or subsidy or their injurious effect; upon such acceptance, investigations are suspended. At the time of a preliminary determination, the case is then referred to the Canadian Import Tribunal for a final determination on the injury question; in the meantime, Revenue Canada proceeds with the final stage of its investigation with regard to dumping or subsidization. Final duties are levied on imports if affirmative determinations are made by both Revenue Canada and the Tribunal.

The Act specifies time limits for the processing of complaints.30 It also provides Canadian importers and foreign exporters and governments with the right to challenge the initiation of subsidy and dumping investigations.31

Evidence of Rise in Trade Barriers and Their Effects

Difficulties of Measurement

The rise in protectionism in the past several years has generated increased interest in the quantification of protection. Ideally, quantified estimates should capture the incidence and the direct and indirect effects on trade flows of all relevant external and domestic policies which impede or stimulate trade in a manner inconsistent with comparative advantage. Several factors in particular make this difficult. The first is the nontransparency of many measures. For example, administrative procedures at customs points can impede trade. Also, some actions may be difficult to identify, such as industry-to-industry export restraint arrangements, discriminatory government procurement policies, or “buy domestic” stipulations. As noted in an OECD (1985) study, trade measures may have become less transparent recently, both because governments have sought to bypass their obligations under the GATT and have not wished to be obvious about departing from liberal trade principles. Second, even “official” actions may be restrictive in form but not in substance, and vice versa. Thus, licenses may be granted liberally even when a system of discretionary import licensing is in place, so that imports are not unduly impeded. Legislation to widen the authority to impose restrictions may itself have a dampening effect on trade by increasing the uncertainty of market access.

The third major difficulty lies in identifying an “undistorted” norm against which the distorted markets can be reasonably measured.32 Other difficulties in quantification include proper specification of homogeneous commodities or product categories, aggregation of diverse information, and separating out the effects of protection from those of other factors, especially under different or varying economic structures and data availability.

These numerous conceptual and empirical difficulties testify to the imperfect “state of the art” on quantification and largely explain why conclusions differ on the actual extent and costs of protection. The selective studies cited in this paper are meant to be illustrative, without attaching sanctity to any particular estimate.

Tariff Incidence

The height of tariff barriers is, in principle, the easiest to quantify. Successive GATT rounds of multilateral trade negotiations have reduced the average incidence of tariff protection in industrial countries to quite insignificant levels. For example, average tariffs on industrial country dutiable imports will be below 6 percent in 1988, or some 25 percent lower than previous average rates. In agriculture, the Tokyo Round resulted in tariff concessions being exchanged on 30 percent of trade in agricultural products, with the reduction on these products amounting to 40 percent on a weighted-average basis (GATT 1979). These tariff averages conceal some fairly wide variations in the structure of protection in the industrial countries. On the whole, however, the importance of tariffs as barriers to trade has declined.

Incidence of Nontariff Measures

Compared with tariffs, nontariff barriers have emerged as serious impediments to trade. The inventory of the United Nations Conference on Trade and Development (UNCTAD), which is based on official data gathered by UNCTAD staff, includes some 21,000 cases of applications of product-specific nontariff measures. According to this inventory, almost 98 percent of the 1,010 four-digit CCCN33 product groups face a prohibition somewhere in the world, and often in more than one country. The World Bank recently prepared an updated estimate of the incidence of four types of nontariff barriers (quantitative restrictions, voluntary export restraints, measures for the enforcement of decreed prices, and tariff quotas), based on the UNCTAD inventory. The estimate showed that industrial countries applied nontariff measures to 13 percent of their imports when the incidence was weighted by world trade. Import data referred to 1981 and nontariff measures to several recent years, as specified in the UNCTAD data base.

Based on official notifications to the GATT by 53 of its 90 contracting parties, the justification for the imposition of nontariff barriers varies across countries, and particularly across country groupings (Tables 3 and 7). Table 3 excludes a number of restrictions, notably those relating to the Multifiber Arrangement and voluntary export restraints; it does not take into account counternotifications by other contracting parties of measures maintained by their trading partners which affect their exports.

Most countries now employ some form of nontariff barriers, and their use is growing. Balassa and Balassa (1984) note that the share of imported products restricted by nontariff barriers in total manufactured imports in 1980 amounted to about 6, 11, and 7 percent in the United States, the European Community, and Japan, respectively; during 1981–83, nontariff barriers were extended to other products, equivalent to 6½ and 4 percent of 1980 manufactured imports of the United States and the Community, respectively (Japan imposed no new restrictions) (Table 4). They also note that the consumption of product groups subject to restrictions accounted for 20, 24, and 16 percent of the consumption of manufactured items in the United States, the Community, and Japan, respectively, in 1980; restrictions during 1981–83 affecting other products were equivalent to 15 and 4 percent of 1980 consumption values in the United States and the Community, respectively. The study did not take into account some liberalization measures during 1981–83.

Cline (1984) finds that products affected by nontariff barriers during the late 1970s to 1981 accounted for 45 percent of U.S. imports of manufactures in 1978; the corresponding percentages for the Federal Republic of Germany, France, the United Kingdom, and Japan were 28, 40, 26, and 22, respectively. Similar percentages for manufactured imports from developing countries ranged from a high of 43 percent for the United States to a low of 24 percent for the United Kingdom. In calculating the coverage of restrictions, the assumption was that, if part of a tariff line or a particular source of imports was restricted, all imports under that tariff line were affected; also, certain processed agricultural products (e.g., processed meat) were included. This broader coverage largely explains the higher ratios compared with Balassa and Balassa.

In an earlier and even broader study, Page (1981) defines “managed” trade as that subject to some form of nonmarket control and calculates the percentage of managed to total imports for 122 countries and the share of managed trade in total trade for countries in a given product category. The study finds that 40 percent of all countries’ trade was managed in 1974; this ratio rose to 48 percent in 1980 (Table 5). The aggregate data mask the incidence of nontariff barriers on particular product categories. Page (1979) notes that the highest growth rates of measures appear in sectors where comparative advantage is shifting and that the most marked increases in managed trade occurred from 1974 to 1979 in sectors where developing countries had developed a comparative advantage (footwear, clothing and textiles, etc.), or, as noted by Greenaway (1983), where a combination of structural change and cyclical pressures had generated acute adjustment problems (steel, shipbuilding).

Measurements based on frequency indices of the above type generally provide information on the coverage of restrictions, but not on their effects. Further, frequency indices provide only a rough indicator of the incidence of restrictions and do not necessarily take into account differences in intensity of application of the restrictions.

Effects of Protection and Liberalization

Several studies have estimated the costs of protection by using fully integrated models of world trade. References to studies on the effects of protection in individual industrial and agricultural sectors are contained in Part Two, Sections III and IV.

Klein and Su (1979) use Project LINK to study the effects of 5, 10, and 20 percent tariff increases on the manufactured imports of 13 OECD countries.34 By means of a world trade matrix, LINK interrelates demand-orientated, dynamic econometric models of 13 OECD and 7 centrally planned economies, as well as 4 developing areas (Africa, Latin America, the Middle East, and Southeast Asia), and the rest of the world. Cumulating 1978 and 1979, the main results under the 5(20) percent increase in protectionism scenario are (a) world trade declines by $60(213) billion; (b) real GNP in developed and developing countries is lower by $6(22) billion and $2(6) billion, respectively; and (c) the trade balances of the developed and developing nations deteriorate by $45(158) billion and $8(28) billion, respectively. Inflation rates and world trade prices rise under all scenarios.

Brown and Whalley (1980), using a Heckscher-Ohlin type numerical general equilibrium model of international trade involving the United States, Japan, the European Community, and “the rest of the world,” analyze, inter alia, the effects of trade liberalization. They find that worldwide abolition of all tariff and nontariff barriers raises world welfare (as measured by estimated changes in gross national product) by $20 billion a year in constant 1973 dollars, of which $9 billion accrues to the developing nations and $8 billion to the Community. The authors caution that the results pertaining to the developing countries should be interpreted with care, largely because “the rest of the world” is only schematically modeled. They conclude, however, that this latter bloc loses substantially from the trade policies of the major trading groups, especially because of the restrictive barriers applied to agricultural products and raw materials.

Deardorff and Stern (1983a, 1983b) use the Michigan model of world production and trade to assess Tokyo Round effects and the impact of a complete elimination of post-Tokyo Round tariffs. The neoclassical model incorporates supply and demand functions and market-clearing conditions for 22 tradable and 7 nontradable industries in 18 major industrial and 16 major developing nations; an aggregated sector represents the rest of the world. They find that the Tokyo Round cuts in tariff rates, together with negotiated reductions of nontariff barriers involving agricultural concessions and government procurement, bring (in 1976 prices) world welfare gains of $5.1 billion, increased exports of $13.2 billion, and a modest average decline in prices.35 The welfare benefits are estimated to be small, mainly because the price changes induced by the Tokyo Round shift demand away from sectors, such as agriculture and textiles, in which nontariff barriers dominate and in which developing countries have an important interest. In a subsequent study on the complete elimination of post-Tokyo Round tariffs, the authors find that the overall world welfare gains are limited to less than $1 billion, largely owing to offsetting terms-of-trade effects.

Whalley (1984), in a somewhat disaggregated version of Brown and Whalley’s model, explicitly incorporates the trade policies of developing countries in estimating the welfare effects of trade liberalization. He finds that the abolition of all tariff and nontariff barriers in all countries increases world welfare (by $33 billion in 1977 prices), but that the welfare of developing countries declines by $31.4 billion. The major reason for this result is that liberalization leads to a decline in the terms of trade of the less developed and newly industrialized country groupings of 30 and 23 percent, respectively. This is explained by higher average rates of protection in the developing countries and the smaller size of trade among developing countries, as compared with trade among industrial countries.

Studies which seek to capture the costs of protectionism generally employ a comparative-static mode of analysis within the framework of a perfectly competitive model of economic behavior. As such, they do not capture the benefits from liberalization which might derive from, for example, increased economies of scale, higher growth rates, and improved economic efficiency. Harris (1984) demonstrates that, on a national level, introducing imperfectly competitive elements into the analysis can considerably enhance the estimated benefits from reduced barriers to trade. Within a static framework, he compares the competitive model with one which includes economies of scale (internal to the firm), explicit price-setting behavior by firms, and product differentiation in the noncompetitive sectors. On a Canadian data base, the author finds that the latter model yields welfare gains from trade liberalization on the order of four times larger (8.6 to 2.4 percent of GDP) than those from the competitive model.

Dynamic elements are rarely introduced. When they are, modeling complexity enforces simplifying assumptions, so that elements relevant to the cost of protection may be underrepresented. Thus, supply-side effects do not play a significant role in Klein and Su’s (1979) dynamic econometric model, and consequently the interindustry and production-cost implications of protection are not captured. On the other hand, adjustment costs related to the implementation of a more open trading system are also ignored. Easton and Grubel (1983) argue that, since most studies measuring the cost of protection ignore—or inappropriately treat—the effects of economic growth, they seriously underestimate the benefits from trade liberalization. They show that growth in the costs of protection corresponds to growth in world trade. The latter has historically been greater than growth in world output, owing both to reduced transportation costs and economies of scale in the production of differentiated goods. However, growth in the benefits from protection is at most equal to the growth of output. Hence, a multiperiod analysis will lead to larger estimates of the costs of protection than the “one-period” mode of analysis. They conclude that the net present value of the cost of protection is probably very high, certainly much higher than is implied by models which consider only instantaneous costs.

International Monetary Fund, World Economic Outlook, April 1985: A Survey by the Staff of the International Monetary Fund (Washington, April 1985).

In March 1985, the United States announced its decision not to seek a further extension of the restriction on imports of automobiles from Japan.

Temporary restrictions on free circulation of goods within the Community under Article 115 of the Treaty of Rome.

In March 1985, the U.S. Senate passed a “sense of Congress” resolution emphasizing its concern about the U.S. trade deficit with Japan and about the lack of full access for U.S. exporters. It called on the President to take measures on imports from Japan such as those authorized by section 301(b) of the Trade Act of 1974, which provides remedies against certain unfair practices by trading partners. A similar nonbinding resolution was passed by the U.S. House of Representatives. Subsequently, in April 1985, the Japanese authorities announced a further package of market-opening measures.

The law included additional factors to be considered in determining eligibility for GSP benefits, such as the patent, trademark, and copyright protection offered by a country to foreign nationals, and the steps taken to reduce trade-distorting investment barriers and barriers to trade in services. The law provides the President broader authority to change duty-free treatment of eligible countries and provides for the gradual phasing out of benefits over a two-year period when a country’s annual gross national product (GNP) per capita reaches a level initially set at $8,500. This trigger level is to be increased each year by one half of the percentage change in U.S. GNP.

The potential for an upstream subsidy exists only when a sector-specific benefit meeting all the other criteria for being a subsidy is provided to the input producer. The provision is also limited to subsidies paid or bestowed by the country in which the final product is manufactured. The provision generally codifies existing Department of Commerce practice.

In general, previous laws applied only to sales that had already taken place and not to those expected to occur.

The Act’s provisions on steel and wine are described in Part Two, Sections III and IV, of this paper.

Complaints may be presented to the Commission either by an association representing an industry throughout the Community or by a member state. On receipt of the complaint, the Commission must decide within 45 days (60 days in special circumstances) on the question of evidence and injury. In a positive determination, the Commission must decide within five months (seven months in complex cases) on further action to be taken to defend the Community’s interests.

Previously, subsidy complaints against imports were covered under customs legislation. Cabinet approval was required before duties could be imposed.

Revenue Canada has 21 days from the date a complaint is filed to examine the complaint and to request any additional information. Once a case is properly documented, Revenue Canada must decide within 30 days whether or not to investigate the complaint. If an investigation is initiated, Revenue Canada has 90 days to reach a preliminary decision on whether dumping or subsidization of imports has occurred, to estimate the margin of dumping or the amount of subsidy, and to determine whether there is sufficient evidence of injury caused by the dumping or subsidization to justify proceeding with the investigation. In complex cases, the 90-day time limit may be extended by a further 45 days. Revenue Canada has a further 90 days in which to make its final determination. The Import Tribunal must determine, as soon as possible after a final determination by Revenue Canada, but not later than 120 days after a preliminary determination by Revenue Canada, whether the dumped or subsidized imports have caused or threatened to cause material injury to domestic industry or are materially retarding the establishment of such industry.

Within 30 days of the initiation of an investigation, affected importers or foreign exporters can request that the Import Tribunal review Revenue Canada’s decision to initiate an investigation. The Tribunal can dismiss the case if it finds that there is little evidence that dumping or subsidization has occurred or that the domestic industry has been injured. Parties filing dumping or subsidy complaints have a similar right of appeal to the Import Tribunal when Revenue Canada decides not to initiate an investigation.

Under conditions of perfect competition, world supply and demand for a (homogeneously defined) commodity determine its equilibrium price, which can then be used as a benchmark to measure the protected market price against the “free” price and to calculate the trade flows that would have been realized in the absence of protection. However, if restrictions proliferate to the extent that they affect a large enough proportion of the commodity’s world demand (supply), and especially if these restrictions are discriminatory (e.g., bilaterally agreed export restraints), the world market itself becomes fragmented and distorted. There is then likely to he a series of prices for trading goods, rather than a single “free” world market price, to use as a reference.

Customs Cooperation Council Nomenclature.

When a country’s import equations do not depend significantly on relative prices, Klein and Su impose corresponding quantitative restrictions of 5, 10, and 20 percent.

Deardorff and Stem do not quantify the other negotiated nontariff barrier reductions (e.g., customs valuations, import licensing procedures); they quote Brown and Whalley (1980) to suggest a potential welfare gain of $16 billion from the elimination of these nontariff barriers.

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