Protectionism has gone digital. With the transition of our economies to the online world, it was only a matter of time before governments would find new ways to protect their companies from foreign competition in this new important economic sphere. Over the last decade, we have seen a rising number of trade restrictions targeting digital goods and services. The tools used are both traditional trade restrictions, such as tariffs on digital goods and restrictions on investment in digital sectors, and new types of restrictions.
Thoughts on trade, investment and development from the ARTNeT community
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More than one hundred years ago, the West, including the United States, used two Opium Wars and other military actions to force then closed-door Qing Dynasty to open the Chinese market to have free trade with them. Ironically, nowadays while China is becoming a strong advocate of freer international trade and globalization, the “America First” policy is steering world toward protectionism, unilateralism and isolationism.
A growing consensus is emerging highlighting that the benefits of international trade are not accruing to everyone within economies with equity. Competition from abroad can often hurt a number of domestic industries, which has prompted many firms to search for cost-savings, potentially resulting in significant downward pressure on wages and labour conditions. A number of governments are attempting to ensure more equitable outcomes from trade liberalization, with labour provisions in trade agreements offered as a solution.
Following Brexit in March 2019, the UK will be effectively a “third country” for purposes of access to the European Union’s single market, in all likelihood facing some significant additional tariff (and non-tariff) barriers. During a further “transition” period lasting until December 2020, the UK will have the right to negotiate new trade deals with other non-EU states, while simultaneously seeking a comprehensive free trade agreement of its own with the EU. A Canada-style FTA (CETA) is the most likely outcome of these negotiations.
In recent years, the power of digitization in international trade to enable sustainable development has been much touted. However, beyond the rhetoric, small businesses and entrepreneurs, particularly in developing countries, still find it difficult to take advantage of the opportunities for trading online. Barriers to accessing finance for trade and efficient delivery services, together with the lack of regulations to govern the flow of data and goods, among others, preclude small businesses from entering large consumer markets.
President Trump’s decision to increase import tariffs on steel and aluminium to 25% and 10% respectively, raises a number of critical issues that are central to the global trading regime. The fundamental issue is the unilateral nature of these tariff hikes. Tariffs were raised also on two other products, namely washing machines and solar cells and modules. There are indications that this list may get longer.
Multilateralism has been the backbone of international trade relations for seven decades. We usually associate multilateralism with non-discrimination, referred to in GATT/WTO circles as the most-favoured-nation (MFN) principle. That principle has been applied pragmatically and two prominent institutionalized exceptions are permitted. One is MFN departures for regional integration agreements and the other is for special and differential treatment to support development in lower income economies.
Support for multilateral solutions to trade policy problems is high among analysts in the Asia-Pacific region. Governments too say they prefer multilateralism over unilateral policy shifts. But what are we prepared to do about it? We are taught in game theory that talk is cheap--and there has been a lot of cheap talk about supporting the WTO in recent years. Indeed, if fine words in summit communiques resolved trade disputes and negotiation impasses, commercial peace would have broken out a long time ago.
Since the early 1990s there has been a steady and continuing creation of new Regional Trading Agreements (RTAs) in the world economy. By contrast attempts to conclude the Doha Development Round of multilateral negotiations have floundered. There is a growing concern that these discriminatory RTAs may be hindering further multilateral liberalisation.
One response has been a drive to “multilateralise regionalism”. This movement began with a 2006 paper by Richard Baldwin. He proposed to extend the range of countries which may benefit from regional trade liberalisation.