By Jorge Argüello (*) – What defines a protectionist country nowadays? Is it when a developing country takes precautions against a flood of products with plummeting prices due to an international crisis? Or, is it when an export powerhouse delivers large subsidies exclusively for domestic production? In a world economy like today’s can protectionism be measured solely by Customs measures or those targeting imports?
The answers to these questions will determine if the Americas are headed towards a “trade war,” or if we will need to have a more open dialogue based on new terms and conditions.
I tested some of these answers a few days ago when I appeared on journalist Andres Oppenheimer’s TV show along with the US under secretary of Commerce for International Trade and other participants.
Under Secretary Frank Sánchez expressed concern about Argentina’s current trade policies and mentioned recent claims made by the European Union, the United States — and even by Mexico — against Argentina at the World Trade Organization (WTO), which were widely reported by the media.
First, let me put this into context. Countries file these kinds of complaints against each other periodically; it is common practice within the WTO. While there have been no legal claims against any Latin American country from outside the region, the European Union and the United States have each faced more than a dozen of them in the last four years.
Is a trade war imminent? Speculating on this possibility is excessive. Tensions do exist due to the recent crisis that disrupted global trade. This resulted in lower prices, reduced domestic demand, the adoption of stimulus packages in developed countries, production surpluses, and a great number of products that countries need to sell all around the world.
Perceptions should be based on facts. For instance, why do some argue that Argentina is on the path to protectionism? The most protectionist countries buy the least. In 2011, among all G-20 members, the country that most increased its imports worldwide was Argentina, reaching 30.7%. Moreover, since 2003 Argentina’s overall imports have grown fourfold (447%)!
In our bilateral relationship, USITC statistics contrast notoriously with any argument that claims otherwise. During the last decade, our bilateral trade doubled (107.7%), reaching 13.1 billion dollars. Argentina’s trade deficit with the United States grew 48% from January-February 2011 to 2012. Paradoxically, Argentina, the main producer of lemons in the world, which exports to over 60 countries, cannot sell a single lemon in the United States. That is protectionism.
Under Secretary Sanchez asserted that the United States had used subsidies as a tool to boost the economy. He argued that only subsidizing products intended for export was protectionist. Is protectionism being reinvented through regulations, subsidies or technical requirements that have similar distorting effects as a mere customs restriction measure?
This is an old debate. In 1933, in the League of Nations, the US delegate advocated for subsidies on production while rejecting those placed on exports. Other countries such as Australia and Brazil, conversely, demanded that both be regulated, as they could be used for the same protectionist goal.
There is a new “protectionism” that is not covered under the WTO rules. For instance, the US government bailed out General Motors and Chrysler. This distorts competition, discriminates between domestic and imported products, and has a protectionist effect. The same can be said with regard to the American Recovery and Reinvestment Act of 2009, which injected 787 billion dollars into the economy for infrastructure, prioritizing the purchase of US goods.
Any government assistance that promotes social welfare and has no trade implications is healthy. But all other subsidies will inevitably have negative commercial repercussions. This reality can no longer be overlooked in discussions about protectionism, let alone without mentioning agricultural subsidies!
The trade tensions that resulted from the current global economic crisis need not call for the filing of claims or the fear of trade wars. We need to work together with accurate information, a broader view to give new answers to old questions and the political will to increase trade to recover and strengthen the economies of our Americas and the world.
(*) Jorge Argüello is Argentina’s ambassador to the United States.