Zoelle effectively subsidize the domestic industry


Protectionist measures can take many forms. These include, for example, customs duties, licensing procedures for imports and exports, complex approval procedures and mandatory requirements for local added value when awarding public contracts or market approval.

Politicians use such means to improve the position of local companies, to promote production and processing in their own country and to create jobs. For local companies and consumers, however, market foreclosure often ends in declining international competitiveness, in a lower variety of offers and in overpriced prices.

Customs duties: stumbling blocks in world trade

Customs duties are levies that are levied on the import (import duty) or export (export duty) of goods. For decades, a clear downward trend in the average global tariff level could be observed. This trend could come to an end now. In addition, there are still high tariffs in many sectors. In the EU, for example, according to data from the World Trade Organization (WTO), duties of up to 258 percent are levied on dairy products. In the USA, peak tariffs on beverages and tobacco reach up to 350 percent. Classic industrial sectors are also affected by such high tariffs. In India, for example, top tariffs of up to 88 percent are imposed on certain textile products. In emerging and developing countries in particular, fairly high average tariffs make international and regional trade more difficult. China, for example, applies average tariffs bound by the WTO of 9.8 percent, India's 17.1 percent and Nigeria 12.1 percent.

Non-tariff trade barriers - new and old barriers in world trade

Non-tariff barriers (NTB) denote all political measures that can restrict trade flows but do not constitute tariffs. There are three types of NTB:

  1. NTB on imports: These include import quotas, import restrictions, import licenses, customs procedure and administrative fees.
  2. NTB on exports: These include export taxes, export quotas, export bans and other export restrictions.
  3. NTB in the domestic economy: these are measures imposed behind the border. They include, among other things, disclosure requirements for sensitive company data, mandatory joint ventures, technical standards, taxes or other levies and domestic subsidies.

Protectionism on the rise

Since October 2008, the WTO has regularly recorded new protectionist measures by its members. In the period from October 2008 to October 2019, the members of the WTO introduced a total of 1,654 trade-restricting measures. From May to October 2019, the G20 countries alone took restrictive measures on an estimated trade volume of 460.4 billion US dollars. This is the second highest volume since the calculation began in 2012. Two periods ago - from May to October 2018 - even a trading volume of 480.9 billion US dollars was affected.

The G20's standstill and repatriation obligation against protectionism played a key role in preventing a protectionism spiral like the one during the Great Depression of the 1930s during the last financial and economic crisis. Since the election of Donald Trump as US President, the trade conflict between the US and China has intensified; and protectionism is becoming more and more socially acceptable.

Trade protection measures for fair competition

In more recent reports, the WTO differentiates more precisely between trade-restricting measures and trade protection instruments. In principle, the WTO allows the use of trade protection instruments. They are intended to compensate for unfair competition or, if there is a threatening increase in imports, to give an industry a respite in order to be able to carry out structural reforms. Protective tariffs can also be levied in the event of a threat to national security, the environment or human health. However, these factors must not be used as a pretext to make international trade more difficult. The measures must also be in accordance with the rules of the WTO. The fact that this is not always the case is proven by a large number of dispute settlement cases at the WTO, which reached a peak of 39 in 2018. In 2019, the WTO recorded 19 disputes.

With transparency and dispute resolution against protectionism

The WTO uses various instruments to oppose protectionist measures and thereby monitors compliance with its trade rules. These include, in particular, the Trade Policy Review Mechanism (TPRM), the reports of the WTO Director General and the WTO's Integrated Trade Intelligence Portal (I-TIP).

The instruments mentioned have already led to more transparency, as they show where states have taken protectionist measures. But there are no real consequences for the states. It is more a question of “naming and shaming” mechanisms. The WTO's Dispute Settlement (DS) mechanism is more effective. In the DS, WTO members can take action against other members in the event of a violation of WTO rules. In the DS, an attempt is first made to find an amicable solution through bilateral consultations and the establishment of panels (first instance); in the second instance, a party can appeal. The panel decision is checked again before the so-called Appellate Body. In the end, trade sanctions can result if the country concerned does not correct the illegal measures in a timely manner.

The USA accuses the Appellate Body of regularly going beyond the contract law decided by consensus of the WTO members with its decisions and thus creating new law. That is why the US government is currently blocking the replacement of this important body. If it is not decided to fill the vacant positions by December 2019, the dispute settlement is about to end. Ultimately, every trade conflict has the potential to escalate if it cannot be resolved in a rule-based process and WTO law effectively enforced. A blockade would undermine a cornerstone of the WTO and thus the credibility of all multilateral trade law.

The BDI is actively committed to a strengthened and fully functional WTO and the dismantling of protectionism. The following requirements are central:

  • Improvement of the WTO monitoring instruments: The WTO Secretariat should point out undesirable developments in the context of the transparency measures more clearly and in a clearly evaluative manner.
  • Maintaining and strengthening the dispute settlement mechanism: Above all, the effort and duration of the DS process must be reduced and the dispute settlement capacities of the WTO expanded. It is also important to fill the vacant positions in the appointment committee quickly. US criticisms must be taken up. As long as no solution can be foreseen, a plan B must be developed and implemented, for example an appeal procedure based on Article 25 of the DS Agreement.
  • Dismantling of protectionist measures: The G20 countries must undertake to publicly justify every new trade restriction and every recurring barrier. The subject needs to be put back on the agenda of the G20 summits.
  • Return to multilateral negotiations: As a multilateral platform, the WTO should again be given more prominence in negotiations. Plurilateral agreements can be an intermediate step in this direction.