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Does the European Union Pursue a Neo-Protectionist Trade Policy?

Does the European Union Pursue a Neo-Protectionist Trade Policy?

With the advancement of the multilateral negotiations, which resulted in a significant reduction in the level of customs duties and other measures implemented at the border, traditional means of protection have become less important in the public policy equation adopted and implemented by the economic powers. These paradigm shifts have created a favourable framework for the proliferation of non-tariff measures, which have gained a significant influence on trade flows. The main analytical objective of this article is to analyse the trade policy of the EU, bringing to the fore the trend of restricting trade flows with third countries. There is some evidence that, in the 21st century, the trade policy of the EU continues to have a flavour of neo-protectionism, with the trend of restricting trade flows gradually increasing, calling into question the achievement of the desideratum of multilateral trade liberalization. 

Background 

The establishment of new rules for the global trade arena and the limitation of use of customs duties have led to the expansion of non-tariff measures, which constitute the core of neo-protectionism. Non-tariff measures represent “other measures than customs duties, that can potentially have an economic impact on international trade” (UNCTAD, 2015). Ethier and Fischer (1987) studied the neo-protectionist policy and identified two main characteristics. The first is the uncertainty related to the application of these measures and the second is their temporary nature. Although they are not new in the international trade landscape, non-tariff measures are less visible, complex and varied in terms of objectives and mode of application. Taking into consideration these characteristics, some analysts highlighted that non-tariff measures are dangerous as they are threatening the objective of establishing a stable international cooperation (WTO, 2012).

The main differences between traditional protectionism and neo-protectionism have been revealed through the effects that trade instruments have on the economy of a country. Hence, old protectionism was largely based on customs duties, which are “market economy instruments”. In contrast, non-tariff barriers, which are more prevalent with the emergence of neo-protectionism, have a negative impact on the market economy mechanism by restricting consumer choice and limiting competition between domestic and foreign producers. According to the experts, in opposition to the previous version of protectionism, which involved changes in the level of customs duties, the new trade policy is based on non-tariff measures, state intervention and market-sharing arrangements (Balassa, 1978). From the perspective of Baldwin (1986), the new protectionism would be characterized by uneven treatment regarding the application of non-tariff measures and benefits granted to third states. The analyst anticipated that the following period would see a proliferation of the intervention of the state in order to develop the industries intensive in technologies and to maintain the vital domestic industries.

In the specialty literature, there are frequent references to the measures that constitute the foundation of neo-protectionism, such as the sanitary, phytosanitary and technical barriers. The expansion of standards related to goods and production processes represents a direct consequence of enhancing societal concerns about nutrition, health, or environment. Neo-protectionist measures such as technical regulations or quality standards have a significant impact on the business environment, causing a decline in the competitiveness of foreign products. This is mainly due to the additional costs resulting from the need to “adapt products to specific standards or regulations and to undergo product conformity assessment procedures of importing countries” (Cadot et al., 2012).

Neo-protectionist policy is also characterized by the use of anti-dumping measures. Anti-dumping measures are “a major weapon in the protectionist arsenal”, taking into consideration that profit-making companies, implementing legal actions, can be unfairly accused that they are engaging in unfair pricing practices that will harm indigenous firms (Kerr, 2006). Vandenbussche et al. (2011) argue that anti-dumping measures implemented within the EU under the pretext of defending fair competition are essentially “industrial policy tools”. Consequently, the strong negotiating power of the EU favour the authorities’ intervention in trade and the strictness of anti-dumping measures. Furthermore, although anti-dumping measures are adopted under the pretext of countering unfair commercial practices, they are often based on pressures made by some relevant actors from the internal market, so they do not have the real purpose of punishing unfair practices, but protecting indigenous industries (Aggarwal, 2004).

In the context of the new protectionist policy, subsidies from the state budget have begun to be frequently used. These measures can significantly distort the competition between companies from different countries, representing in fact an additional intervention of the state in the economic life. Although politicians are aware of the benefits of free trade, decision-makers are often in favour of restricting trade flows, especially because in their view revenue distribution is more important than prosperity created by free trade (Gundlach and de Vaal, 2014). Moreover, subsidies implemented for commercial reasons “are still difficult to politically discipline”. This can be explained by the fact that customs duties are perceived as trade policy measures, while subsidies become “prerogatives of national policy”, so their abandonment could suggest the renunciation of national sovereignty (Kerr, 2009).

On the background of the emergence of neo-protectionism at the European level, some experts revealed the implications of the voluntary export restraints. These measures, considered to be “market-sharing arrangements”, are often included in existing economic policies of the EU, for example with the development of the Common Agricultural Policy (Roarty, 1996). According to the analyst, the EU is responsible for escalating voluntary export restraints that have distorted international trade and have harmed the interests of developing countries, which are bound to respect commitments to restrict exports of products considered to be “sensitive” on the European market.

In conclusion, the current trade landscape involves many challenges as non-tariff barriers have become increasingly used. It has become a common fact that although GATT and WTO negotiations have significantly reduced the level of customs duties, a favourable framework has been created for the implementation of other measures restricting trade, such as government regulations to protect the health of citizens and preserve the environment. Consequently, in the 2000s, there has been an expansion of regulations on health, safety and consumer protection or environment, mainly within developed countries. 

Data and results 

The reduction of the level of customs duties has been followed by the proliferation of non-tariff measures since the second half of the last century. In the literature, many analysts have noted that these measures threaten the desideratum of liberalization, especially because they are difficult to identify and regulate at multilateral level. Despite the fact that European authorities declare their support for a free trade policy, the statistical data illustrates that more non-tariff measures were implemented in the last 11 years. Therefore, taking into consideration the data provided by the WTO, it can be concluded that the total number of non-tariff measures implemented by the EU has increased by more than 100% between 2006-2016, reaching the absolute value of 1931 at 31/12/2016.

Fig. 1 illustrates that during the 11-year period, the sanitary and phytosanitary measures implemented by the EU have increased by 93%, reaching a high of 591 measures in 2016. This surge could be considered a consequence of the proliferation of societal concerns about nutrition, health or environment which led to the creation of new regulations. The number of technical barriers to trade rocketed over the period, from 338 (2006) to 1047 (2016). Consequently, the technical measures represent the most used neo-protectionist instrument implemented in order to restrict the trade flows with third countries. The number of anti-dumping measures was erratic during the period, the lowest value being reached at the end of 2013, when only 111 barriers were initiated or in force. In 2016, 132 anti-dumping barriers were recorded, a smaller number comparing with the one existing at the beginning of the analysed period, respectively 161. As far as countervailing measures are concerned, their number varied between 10 and 18, hitting the lowest value in 2007. The number of special safeguard measures initiated or in force at the end of each year remained flat between 2009 and 2016, at 27. According to the WTO, the quantitative restrictions are some of the less frequently used measures. At the end of 2016, 11 measures were initiated or in force, while in 2006 there were only 2. The number of tariff-rate quotas and export subsidies remained stable between the analysed period, being initiated or in force 87, respectively 20 measures. 

Figure 1. The non-tariff measures implemented in the EU between 2006-2016

Source: Author’s processing based on data provided by WTO. 

In order to reveal if the European bloc is employing a neo-protectionist trade policy, the article contains a comparison in terms of the non-tariff measures implemented by the EU, the US and China. As a result of the analysis of data provided by the WTO, which reveals the frequency of implementing non-tariff barriers (sanitary and phytosanitary measures, technical barriers, anti-dumping, countervailing measures, safeguard measures, special safeguard measures, quantitative restrictions, quotas and export subsidies), it can be said that the integrationist structure has proved to be the least protectionist power in the EU-US-China triad. As mentioned, at the end of 2016, the European authorities maintained or implemented a total of 1931 non-tariff measures, most of which consisted of technical barriers, namely 1047, and sanitary and phytosanitary barriers (591). In contrast, the US has imposed itself as the most protectionist trade entity, taking into consideration that it has implemented 5058 non-tariff barriers, a number that is 2.6 times higher than the one recorded in the EU. Most barriers to trade have been sanitary and phytosanitary barriers (2913) and technical barriers (1455). China ranked second in the implementation of neo-protectionist measures, with 2530 non-tariff measures at the end of 2016. Of these, the most numerous barriers have been sanitary and phytosanitary (1192) and technical barriers (1179), safeguard (special) measures and export subsidies being eschewed entirely according to the WTO. Taking into consideration the analysed data, it can be argued that although the EU continues to implement non-tariff measures affecting free trade with third countries, it cannot be considered a promoter of this trend. 

Figure 2. The non-tariff measures implemented in the EU, the US and China (initiated or in force on 31/12/2016)

Source: Author’s processing based on data provided by WTO. 

Considering that most analysts agree that trade flows with agricultural goods have been hampered, the current study emphasises the protection granted in the EU through non-tariff measures and other instruments, such as the government support. The data provided by the WTO which is aimed at the measures that affect the agricultural sector reveals that, during the analysed period, the number of barriers has permanently increased. The calculations show that the total number of instruments almost doubled between 2006 and 2016, from 363 to 624. This rise was mainly the result of a more frequent implementation of sanitary and phytosanitary measures. Therefore, the number of sanitary and phytosanitary barriers has increased by more than 100%, from 218 (2006) to 448 (2016). This expansion could be considered the consequence of increasing societal concerns of the European consumers or the result of the pressures made by interest groups on government authorities to restrict trade flows.

The technical barriers have risen since 2006, from 13 measures to 31 in 2016. The number of anti-dumping measures against third countries also increased during the analysed period, from 5 (2006) to 9 (2016). While countervailing and quantitative restrictions have a null value at the beginning of the period, the former reached 3 measures and the latter 1 at the end of the period. The number of special safeguard measures that were initiated or in force at the end of each year rose from 21 (2006) until 26 (2009) and then remained steady until 2016. Last, but not least, there were no changes in the number of tariff-rate quotas and export subsidies during the period. Overall, it can be concluded that the barriers in the agricultural sector represent an important proportion of the total measures implemented in the EU. At the end of 2016, the barriers targeting the agricultural sector accounted 32% of the total non-tariff measures initiated or in force at the European level. 

Figure 3. The evolution of non-tariff measures implemented in the agricultural sector in the EU between 2006-2016

Source: Author’s processing based on data provided by WTO. 

In order to highlight the degree of protection within the agricultural sector, we give as an example one representative indicator calculated by the OECD, namely the agricultural support. The indicator refers to governmental support granted to the agricultural sector and comprises producer support, consumer support and general services support, which form the total support. The first indicator, namely the producer support, is calculated as a percentage of gross farm incomes, taking into account “measures to support market prices, budget payments and the cost of revenue losses”. The second indicator is the consumer support, which measures financial transfers made by consumers to the agricultural sector. If the indicator has negative values, it suggests that there are additional costs for consumers and, consequently, higher prices for the agricultural products. In case of positive values, it is highlighted that authorities offer subsidies to consumers. Another indicator that is part of the total support granted to the agricultural sector is the general services support. This indicator reveals the policies related to agriculture, excluding the payments to individual producers, and it is calculated as a percentage of the total support. If the indicator has higher values, it suggests greater intervention in order to create optimal conditions for the primary sector through development of infrastructure, institutions or services. Finally, the total support includes all the indicators previously analysed, respectively the producer support, consumer support, and general services support, being calculated as a percentage of GDP.

Fig. 4 shows that, during 2006-2015, government support to European producers declined by approximately 10.2 percentage points to 18.92% (2015). Furthermore, the chart reveals that consumer support has negative values in case of the EU, measuring the taxes that must be paid by the consumers in order to maintain the marker prices. Statistics reveal that the consumer support had a downward trend until 2011, when only 2.56% of the agricultural consumption was meant to support prices. After that, the indicator recorded more negative values, reaching in 2016 a percentage of -5.48, illustrating the existence of market prices support for agricultural products.

The protection granted to the agricultural sector has also been analysed from the perspective of the general services. At the level of the EU, the support had an upward trend over the period, ranging from a percent of 9.79% of the total support (2006) to 12.94% (2015). This evolution indicates that more public or private services were created to favour the agricultural sector. Overall, the total support, which comprises the 3 indicators described above, highlights a decrease in financial aid granted to the European agricultural sector. As Fig. 4 reveals, between 2006 and 2015, aid to the agricultural sector declined in the EU, from 0.96% to 0.7%. The gradual decrease during the period could suggest a blurring of the tendency to favour agricultural producers to the detriment of consumers and tax payers. In conclusion, it can be argued that domestic support still has an important role in the European agricultural sector, and with the emergence of the neo-protectionist trade policy, subsidies are gaining new importance, representing a new form of non-tariff barriers. 

Figure 4. The agricultural support granted in the EU between 2006-2015

Source: Author’s processing based on data provided by OECD. 

Overall, the analysis of the data provided by the WTO regarding the frequency of implementing non-tariff measures by the member states has illustrated that the EU is less protectionist than the US and China. However, the statistics have revealed a similar trend regarding the category of trade measures implemented by the EU-US-China triad, namely the dominance of sanitary, phytosanitary and technical barriers. Regarding the OECD’s statistics, it can be argued that subsidies have gained an important role in the neo-protectionist orientation, hampering international trade with agricultural products. Data reveals that European authorities continue to grant support to agricultural producers, in detriment of European consumers and taxpayers, but the total support seems to gradually diminish. 

Conclusion 

The EU has imposed itself as the most influential regional bloc within the international landscape, and the shaping of a common trade policy appropriate to the community and external context has played a catalysing role in this respect. In the attempt to test the hypothesis that the EU is pursuing a neo-protectionist trade policy, the study contains the critical analysis of the literature, as well as the interpretation of relevant statistical data. Although European political decision-makers argue against restricting trade with third countries, some analysts suggest that the EU has often been in favour of implementing a neo-protectionist policy. The analysis of statistical data has revealed that the number of non-tariff measures is gradually increasing at the beginning of the new millennium, also in the case of agricultural products. However, it can be argued that the EU has proved to be less protectionist than other major players in the international trade arena. Given these considerations, the current study reveals that, in the 21st century, the trade policy of the EU continues to have a neo-protectionist dimension, despite the predominant trend of international trade liberalization. 

References 

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