Protectionism? – We are all guilty!!

I write this article to clarify my stance on the question of protectionism that might have arisen from my previous article on the EPA between the EU and ECOWAS, and the hesitance of the region to run with the agreement. It has been pointed out to me severally that non-assent to the EPA or non-implementation of the assented EPA or in this case the pushback by the government backed by the organized manufacturing sector tends towards a form of protectionism being introduced by the region and that the result is that it will do the region no good in the long run. As a matter of fact, some of the arguments against protectionism that was then given to me is the example of South Korea i.e. that South Korea used export promotion policies to move from a GDP lower than that of Bolivia or Senegal 50 years ago to being the world’s largest ship-builder and fifth largest car manufacturer today. Very true indeed. However, I must confess that with the case of South Korea, there was a concerted, strategic, deliberate, measured and planned execution of the development of the industrial sector by their successive administrations for this to come to fruition. As the popular saying goes, ‘where there is a will, there is a way’. African governments have not shown any desire to implement policies of previous administrations that tends towards industrialization and eventual competence, no matter how nationalistic they might be. Thus we also perpetuate a circle of good programmes, good economic policies that have a four year life span, (at best five) and will not give room to grow the local economy. Thus I see a constant need for African governments to constantly protect the ever infant local industry at the expense of encouraging inter regional trade. This is in no way the fault of the local manufacturer who sees his goods as inferior or non-competitive on an international stage, and who in return is constantly lobbying his government to put in place protectionist measures to guaranty his investment. As a matter of fact, in fairness to him, the fact remains that the obvious first reaction of governments is to protect and develop whatever local industry they have while they try to explore other trade options. At face value, the objective at first seems to be very clear i.e. we need more protection, we will deal with our country’s lack of competitiveness and the core causes thereof later – just not now, not yet. Or as soon as we deal with other issues Sub-Saharan Africa is also the recipient of preferential access to the markets of many industrialized countries. Now there are a group of likeminded people within the region who generally see the benefits of free trade. But that view is not necessarily widely held in the broader society, where protectionism attracts a lot of support. What this tell us is that we need to increase our share of voice on this issue and have more discussions about the issue of free trade and its attendant benefits to the region. We need to stimulate more debate about trade policy, tease out different viewpoints, and hopefully end up with policies that better suit both our national self-interest and the global interest in returning to growth as soon as quickly as possible." While this is being said, there is also a need to place more emphasis on the commensurate development of infrastructure that would ensure that local industries are not swallowed in process. With the current emphasis on Nigeria as a giant within the region, the following question will guide our discuss on the subject matter of protectionism Vis a Vis free trade; 1. One will argue that giving the current Nigerian situation with a negative balance of trade and payment, an encouragement of import and export oriented policies will greatly assist the government in their drive to backward integrate 2. Another argument is that restricting access to the Nigerian market due to the need to grow local industries will not help the country to grow their products to the required standard necessary for the country to compete in the International stage 3. Another argument also is that the only way for the country to increase its foreign reserve is to encourage trade with other nations, and also to encourage the industrial sector to grow. And thus opening our borders to goods from other countries will not kill the local economy but in the alternative, will stimulate it. According to the Global Trade Alerts GTA's Pre-G8 Summit Report titled Protectionism's Quiet Return: it is Interesting to note that despite the resolve of the industrialized economies to prioritize combatting protectionism, the 12th GTA report which was compiled and released just before the G8 Summit in Lough Erne, Northern Ireland, on 17-18 June 2013, trade restrictions continue to become more pronounced than in the past. In April 2013, when introducing reduced forecasts for world trade growth, the Director-General of the WTO, Mr. Pascal Lamy, warned that the protectionist threat may be greater now than at any time since the onset of the global economic crisis. It is important to note that protectionism cases were more from the industrialized nations that the so called emerging nations. And this was on the basis of the evidence presented during the summit. What may be less well known is that sub-Saharan African governments have not resorted to protectionism on the scale of industrialized countries and some developing country peers. With recent summits, conferences across the length and breadth of Africa from Cape to Cairo to the Horn of Africa, Indeed, the drums to lure foreign direct investment appears to be beating. This is seeing governments and countries making repeated changes to policies that borders on taxation, ease of doing business, and other policies to convince foreign to bring in the much needed FDI. Ultimately, the protected industries supplying the raw or intermediate products experience reduced demand and suffer the same injury – a while later, when market share at a finished-product level has been lost to imports. Obviously, importers and their distribution channels are the first to feel the effect. They employ people who feed households, often in economically depressed areas where whatever social cohesion does exists depends on these jobs, which may be wholesale, retail or service related. Before we delve more into the discuss, at this point it is important that I give you more perspective on the topic What is Trade protectionism? Trade protection is the deliberate attempt to limit imports or promote exports by putting up barriers to trade. In economics, protectionism is the economic policy of restraining trade between states (countries) through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) fair competition between imports and goods Despite the arguments in favour of free trade and increasing trade openness, protectionism is still widely practiced for varying reasons the world over. The main arguments for protection are to protect infant industries, such as those involving new technologies. The belief is that it gives new firms the chance to develop, grow, and become globally competitive before they are now brought to the world stage. The argument is also that is exposed at the time they are forming, they won’t be given the opportunity to grow. It is believed that protection of domestic industries may allow them to develop comparative advantage. For example, domestic firms may expand when protected from competition and benefit from economies of scale. They are also introduced to protect strategic industries, such as energy, water, steel, armaments, and food and deter unfair competition. These barriers are erected to avoid issues of dumping by foreign firms at prices below cost. A host of other reasons are put forward to as to why countries introduced protectionist measures. While discussing the very obvious This article is also majorly concerned with the other, less visible, discretionary administrative practices that can have considerable restrictive effects on imports and not so much as the certain types of trade restrictions which are more prevalent, particularly increases in import tariffs, more non-automatic import licensing, and new export restrictions. One significant bit of detail I took from this Global Trade Alerts GTA's Pre-G8 Summit Report was that; 1. The most consistently affected country is China, whose commercial interests were hit by foreign protectionism just under 1,000 times since November 2008. 2. This rise in the issue protectionism has been done quietly. Countries through their various negotiators became adept at changing the playing field in favour of local firms without ticking off of trading partners. Let us not lose focus of the fact that, the long term result of these protectionist measures is that such measures reduces export revenues, threatens firms’ cash flows and their survival in what are already difficult times based on a harsh external operating environment, and poses a threat to jobs. According to the World Bank, since August 1996 Sub-Saharan Africa has declined in importance in world trade mainly because it has not remained competitive. External protection has not played a major role in this decline; indeed, OECD trade preferences gave Africa an advantage over many exporters. But Africa's own trade barriers are too high. Many studies show that liberal trade policies generally lead to superior growth, an important finding if Africa is to reverse its diminishing role in world trade. I do not totally agree that Africa’s trade barriers are too high, and that is the reason why trade with Africa has declined over time. I believe it is a question of regulatory harmonization more so than excess protectionist measures. Regulatory issues and standardization has remained the major protectionist tool of the industrialized nations. The goods and items produced in the ECOWAS region will not meet the extremely high regulatory standards set by these nations hence it becomes a natural protectionist measure. As science advances and these standards evolve, Africa is constantly struggling to bring its produce up to par with those produced in the Western World. Particularly as it affects agricultural produces. This I believe has been the reason for the decline as opposed to protectionist measures put in place by the African region. I also do not agree that Africa’s marginalization that resulted in Sub-Saharan Africa accounting for 1.2 percent of global exports from 3.1 percent within a 40 year time frame is as a result of protectionist measures put in place by the continent. The real reasons for this decline are important for policymaking and should be critically examined to ensure that Africa’s place in the world trade space is restored. Ng and Yeats find that Africa's extensive loss of competitiveness played a key role in its decline in world trade, and this is very true, and strikes at the heart of this discourse. As the inability to remain competitive due to a myriad of factors bordering on infrastructural decay, a high cost of production etc. is critical to playing on the world stage as international trade evolves rapidly. As a result, Africa is now among the regions mostly highly dependent on relatively few export products and -- unlike all other regions -- this dependence has increased sharply over the past three decades. In conclusion, just as developing countries start to compete with richer countries on trade and other topics, I will leave you with the following conclusive recommendations that should be food for thought. 1. There is a need for the world to start calling for regulatory harmonization that would see global standards which would in turn encourage and further push international trade. These standards should include critical issues like labour, product and agricultural produce and other critical sectors. 2. I believe that given the current economic crisis, international trade is the way to go for emerging economies within the ECOWAS region, this is because an increased balance of trade will help shore up their foreign reserves and also stabilize their local currencies. 3. Countries in this quagmire should ensure that strategies are put in place to develop and support local industries to a point that they are competitive enough to play on the international stage 4. Import competition should be the way to go as opposed to import substitution 5. The region should develop and support their local industries while at the same time encouraging international trade in export within the region and outside the region. 6. Tariff barriers to trade should not be used as measure of protectionism as is currently done by some countries within the region. The effects are usually counterproductive as they don’t achieve the effect of growing that sector is there is no committed plan to put in place the requisite infrastructure.