Mar 21, 1984

PROTECTIONISM, NOT A TEMPORARY ISSUE.

GENEVA, MARCH (IFDA/CHAKRAVARTHI RAGHAVAN) -- Many of the current problems of protectionism and structural adjustment in world trade, are not temporary problems, and will not vanish with recovery in the Industrial countries, warns the UN Conference on Trade and Development.-

The problems, UNCTAD says in a report, are due to structural reasons, and their likely dimensions in future could well exceed those of the past.-

In a historical contests the decade of 1973-83 had seen a number of major abrupt changes in key factors affecting international economic relations.-

These included: highly unstable commodity prices, wide and erratic fluctuations in exchange rates, sharply rising energy prices, the break in the trend towards world trade liberalisation, and worldwide recession with double digit unemployment rates in many industrialised countries.-

These adverse changes took different forms, but had two common elements: each of the problems, in varying degrees, was unanticipated, and each involved significant social and economic costs.-

For example, the trade lost by the Third World as a result of the 1981-82 recession is estimated to have added 100 billion dollars to the Third World’s outstanding debt.-

All the problems and their costs could have been reduced by appropriate policy action, if there had been more predictability in market conditions.-

Throughout the decade commodity markets saw levels of instability unprecedented outside of major wartime periods, entailing costs for both exporters and importers.-

The costs could have been lowered if the instability elements had been anticipated and planned for, and to some extent eliminated.-

There is no assurance that the experience of the last decade witnessed an upper limits to commodity price fluctuations, even though their magnitude was largely unprecedented.-

The continuing instability in international currency markets has also had a major impact on world trading conditions, with short-run exchange rate movements altering the competitive position of the exporting and importing countries and increasing the uncertainty of the climate in which trade is conducted.-

In thus differing from the conclusions of the latest IMF study for the GATT Council, the UNCTAD secretariat cites in this connection from the IMF’s own 1981 annual report.-

"There is certainly no reason to believe that an upper limit has been reached in exchange rate instability. Indeed there is evidence to suggest that an era of progressive instability has been in effect since the early 1970’s", UNCTAD adds.-

The uncertainties associated with the imposition of new protectionist measures had also increased the debt management problems of the countries.-

The failure to anticipate or assess actual market trends properly was a major constraint in facilitating positive adjustment policies. This is partially reflected in the magnitude of the current international debt problems.-

Failure to assess properly international market conditions resulted in costs, due to the changes that took place in the competitive position of the developed and developing countries in labour-intensive industries.-

In a relatively short period, the developing countries achieved substantial export capacities in a number of industries - like steel and shipbuilding - in which the Industrial countries were already ripe for adjustment.-

But this additional capacity came on stream when there was a cyclical, and perhaps even a long-term, decline in demand due to replacements, as in the case of steel by plastics in the automobile industry.-

The inroads that the developing countries were making in a number of sectors could have been easily anticipated, and appropriate adjustment policies could have been initiated by governments to facilitate transfer of resources to sectors where their comparative advantage had not been lost.-

The Industrial countries did not do this, and instead resorted to ad hoc trade restrictive measures, with both domestic and international costs.-

These costs are often measured merely in terms of trade lost or affected.-

But current practices could have a major adverse impact on future trade relations.-

The setback to trade liberalisation, and the lack of transparency in many of the new restrictions (such as the Voluntary Export Restraints) will have longer-term impact.-

National governments may be increasingly willing to adopt protectionist measures and practices that circumvent their international obligations.-

"The likely dimensions of future problems in the trade domain could well exceed those of the past. This calls for increased priority for coordinated international action to increase the predictability and to anticipate relevant trends in production and trade".-

There are also other reasons to believe that trade problems in future would increase.-

A majority of the developing countries have not yet begun to export manufactured goods to any significant extent. Yet their output potential, under various scenarios, could surpass those of countries that now export.-

This would create pressures on current exporters and established producers. At the same time, in the longer-term it would significantly increase the demand for capital goods in these countries.-

Industrial countries, it is often argued, are unable to adjust positively to basic changes in the international setting because of their internal rigidities.-

Internal policies are needed in these countries to reduce rigidities. Otherwise the time between emergence of change needing structural adjustments and the eventual and inevitable occurrence of change would be lengthened.-

There are also other reasons why both exporting and importing countries have a common interest in a coordinated international effort for compiling, analysing and disseminating information on production and trade strategies, as well as national policies on them.-

A national export venture may be commercially attractive on an individual country basis.-

But if other countries are also planning a similar expansion, it will no longer be sound.-

A similar export expansion effort, undertaken independently by a number of countries, would significantly alter the assumptions of the basic market conditions on which the independent investment decisions are taken.-