Fortress Europe and other myths concerning trade

Abstract

Developing countries sometimes still resist free trade because of the alleged protectionism of industrial countries -- a myth belied by facts, says the author. Import growth in the industrial countries accelerated during the 1980s, while income growth slowed. Outside of agriculture (only about 2 percent of GDP) and with the possible exception of Japan, free trade -- not protectionism -- is the reality. Despite the march toward a frontier-less Europe, the European Community (EC) manufactures imports from nonmembers rose faster than intra-EC trade, and imports from developing countries rose fastest. Similar tendencies prevailed in North America. This pattern of imports contradicts the myth of widespread, effective and growing barriers to manufactures imports. Protectionist rhetoric is up because imports are increasing, not because trade barriers are rising. The rising share of developing countries, despite their often weak bargaining positions, shows that multilateral rules, rather than bargaining, threats and counter-threats, still drive the system. In the 1980s, manufactures imports rose to 40 percent of manufacturing production in the United States and to 25 percent in the EC. But in Japan, manufactures imports in 1990 were less than 12 percent of manufacturing production, and their dollar value was smaller than Italy's. Granted, some protectionism persists everywhere, but it is an irritant rather than a true obstacle to trade. For that reason, further trade liberalization can bring the industrial countries little additional benefit in terms of faster growth, though retreat from free trade holds huge potential losses. Only improved domestic policies -- structural and macroeconomic -- can raise investment, accelerate growth, reduce unemployment and consolidate support for free trade. Developing countries should view the United States and the EC as open markets for their manufactures exports. Even in agriculture, policy reform over the present decade should reduce inefficiencies. Meanwhile, analysts should be careful to disaggregate: industrial countries'agricultural policies that have truly harmed food exporters, like Thailand, should not be blamed for the ills of food importers, like most African countries. Selective trade restraints may have blunted but not countered the dynamism of newly industrialized countries and accelerated their shift toward more sophisticated exports. As their barriers to manufactures imports are generally low, the preferences industrial countries grant to developing countries carry similarly low benefits. They help nascent exporters benefit from good policies, but they do not overcome the handicap of bad policies.Environmental Economics&Policies,Economic Theory&Research,Trade Policy,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,General Manufacturing