African economies unable to resist the protectionist impulse

Willemien Viljoen, tralac Researcher, discusses the findings of the latest WTO Director-General Report on trade-related developments, focusing on African countries

BEFORE the global economic crisis, the international trade trend was clearly towards ever greater integration of national markets into the world economy, driven partly by trade reforms at national, regional, and global levels. Once the crisis hit, a recurring fear has been that governments would turn inward, just like they did in the 1930s. Although countries have not yet resorted to the same level of protectionism of the 1930s there has been a large number of new trade restrictive measures imposed quarter after quarter.

Towards the end of July the World Trade Organization (WTO) released the Director-General Report to the Trade Policy Review Body (TPRB) on trade-related developments. This trade-monitoring report reviews the trade-related developments by WTO member countries during the review period, 16 October 2014 to 15 May 2015.

According to the Director-General, Roberto Azevêdo the most alarming conclusion of the report is the significant increase in the stock of restrictive measures. In October 2008 2416 restrictions were in place, of which 76 percent were still in place at the conclusion of the review. With the addition of new measures and the slow pace at which existing measures are being removed, the longer-term trend in the number of trade restrictive measures being implemented raises concerns.

During the review period 92 new trade remedy investigations; covering approximately 0.1 percent of world merchandise imports, were recorded. The majority of these were anti-dumping actions (80%) followed by countervailing measures (14%). According to the report 104 new trade-restrictive measures were implemented during the review period; on average approximately 15 new measures per month. Of these 104 measures 74 percent were implemented on imports and 17 percent on export products. Of the 77 measures implemented on import products 68 percent were increases in tariffs.

It also seems that African economies have not been able to resist the protectionist impulse. At a time when African countries are participating in regional (and soon continental) trade liberalisation negotiations, African economies implemented 12 of the 104 restrictive measures identified in the report. The majority of these were increases in import tariffs by Morocco, the Southern African Customs Union (SACU), Zambia and Nigeria. This is an increase of 33.3 percent and 75 percent in the use of restrictive measures compared to the October 2012 to May 2013 and November 2013 to May 2014 reports, respectively. The restrictive measures implemented by African economies during the review period are the following:
• Angola – import ban on certain food products including oils, maize, wheat flour and sugar.
• Egypt – export duties on products including animal feed, rope and cable and milled white rice and an export license regime for milled white rice.
• Mauritius – tariffs, consignment fees and levies applicable to imports of black tea.
• Morocco – an increase in import tariff (from 17.5% to 75%) on wheat.
• SACU – an increase in the import tariffs of certain barbed wire of iron or steel (from 5% to 15%); of springs and leaves for springs of iron or steel (from 5% to 30%); and of lead-acid used for starting piston engines (from 5% to 15%). An extension of the increase in the import tariffs of cane and beet sugar and of wheat and wheat flour.
• Zambia – an increase in the import tariffs on dynamite, gelignite and dynagel (from 15% to 25%), up to 30 percent on certain flat-rolled products of iron or non-alloy steel and on edible oils. An increase in the ‘import excise duty’ on under natured ethyl alcohol with an alcoholic strength of 80 percent (from 60% to 125%).
• Nigeria – an increase in the import tariff (up to 70%) on products associated with the automotive industry (Chapter 87 of the Harmonised System).

Increased protectionism can lead to unintended consequences for many African economies. Inward-looking policies can have the undesired effect of jeopardising their growth prospects, developmental goals and industrial development. Import products are often an important intermediate input into the manufacturing process, including agro-processing. Increasing the cost of these intermediate products can have negative effects on the cost of production for downstream industries along the value chain, raising the cost of the final product and eroding competitiveness on regional and world markets. Protectionist policies can have the effect of higher unemployment and prices, as well as an increase in debt. The consumers in the protected country are disadvantaged through the limitation in the choice of goods, as well as uncompetitive prices. Protectionism leads to an increase in the cost of consumer goods and production inputs. This has a negative effect on the non-protected producers and consumers in the protected country with the supply of goods decreasing and household expenditure increasing. Through import protection the quantity of imports into the protected country decreases with the result that foreign competition is eliminated or reduced, leading to inefficient domestic firms, with import-dependent production processes.