The global financial crisis has resulted in sharp contraction in world trade and increasing protectionism, although this protectionism has not been dramatic and drastic as it was in the 1930s, and was described by European Centre for International Political Economy director Dr Razeen Sally, as more of a “creeping protectionism”.

Addressing delegates gathered at a South African Institute of International Affairs roundtable discussion in Pretoria, he said that his concern was over the increasing non-tariff barriers (NTBs), and regulatory barriers to trade that were emerging as a result of the crisis.

Sally highlighted that the kinds of NTBs emerging today came in various forms, such as import licensing; financial mercantilism; subsidies; ‘buy-national’ measures; foreign investment restrictions; migrant labour; anti-dumping duties; standards protectionism (which increasingly included climate change); and ‘China bashing’.

“We have actually not seen that much increase in tariff protection. We have seen a few instances of tariff increases in some developing countries - not that many - and these increases so far have been quite modest, and restricted to quite a limited range of products,” Sally noted.

He added that because globalisation has gone “so far and so deep”, it placed limits on an increase tariff protectionism, particularly where global supply chains were at work, and where even a slight increase in tariffs could actually cut a country off from these supply chains. This was particularly the case in East Asia.

“And then there are World Trade Organisation (WTO) disciplines, although these disciplines are weaker on developing countries, because their tariff ceilings, or the bindings, are relatively high,” he added.

The discussion on Tuesday came at a time when stakeholders were waiting to see whether or not the new South African administration would take measures to protect the South African economy at this time of global crisis, and what these measures might be.

New Trade and Industry Minister Rob Davies has indicated the need for South Africa to decide on “an appropriate tariff stance”, which hinted towards increasing tariffs, as a developing country such as South Africa simply did not have the funds to bail-out industries.

Representing South African government at the panel discussion, Department of Trade and Industry multilateral organisations director Thabo Chauke noted that 17 of the Group of 20 countries had implemented some kind of protectionist measures since the global crisis, and South Africa was one of the three that hadn’t.

The global crisis came at a difficult time for South Africa, which was also facing a food and an energy crisis at the same time. “There is pressure on South Africa on how to deal with these issues, and we are still deciding how best to do this,” noted Chauke.

He also noted that emphasis should be put on infrastructure in Africa, as logistics was a significant impediment to trade between African countries. Infrastructure could act as a trade facilitator, as well as an economic stimulus.

Protection through domestic interventions slows recovery

Sally emphasised that the creeping protectionism in evidence today, was a similar kind of protectionism that emerged in the recession in the 1970s, which was negative, but not as debilitating as the protectionism in the 1930s where massive tariff increases “throttled” trade and production.

“We are very much in danger of repeating the mistakes and the experience of the 1970s, and we are in danger of making this particular global recession worse, and prolonging it, and compromising the prospect of a healthy recovery, with the kind of protectionism that is emerging today, and it is emerging from the bottom up from domestic interventions,” stated Sally.

He said that at that time, domestic interventions spilled over the border into trade protectionism, not so much on tariffs, but much more on NTBs – mainly through subsidies. He added that there was standards protection and public procurement protection, and others which came together to be known as ‘managed trade’, with a “plethora of subsidies, borderly market arrangements, import restraints, and so on, in sectors such as cars, airlines, and others, which are the familiar culprits today”.

Clearly not a fan of domestic fiscal stimulus packages such as the ‘Obama package’, Sally added that he felt there was “a link between this more active government at home, under the cover of fiscal stimulus packages, and protectionism abroad”.

He did, however, add that States and markets need each other. “There is a balance that is required,” he said. Sally  added that he had a preference for an “important but limited role of government”, which he likens to an umpire rather than a player. It involved regulation, and also, an important role in infrastructure provision. He was not an advocate of a “State that shrinks to minimum”, or what he calls night watchman status.