Public Disclosure Authorized

World Bank Reprint Series: Number Seventy

The "New Protectionism and the Interrnational Economy

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

Bela Balassa

Reprinted from Journalof World Trade Law, vol. 12, no. 5 (1978)

The 'New Protectionism' and the International Economy BELA BALASSA

:1. TRADE LIBERALIZATION IN THE POSTWAR PERIOD

The Progress of Trade Liberalizalion until THE POSTWAR PERIOD saw steady progress in trade liberalization

the oil crisis and the world recession of 1974-75. Apart from removing of the quantitative import restuictions imposed during the depression nineteeni-thirties and the second world war, efforts were concentrated the on lowering tariffs. Reductions in tariffs originally aimed at reversing increases effectuated during the depression, but they were subsequently lowered much below pre-1930 levels.l Tariff reductionis were undertaken in the framework of the General the dual Agreement on Tariffs acnd Trade (GATT) on the basis of principles of non-discrimination and reciprocity. Non-discrimination in means that, customs unions and free trade areas apart, reductions tariff barriers are extended to all member countries under the application means of the most-favoured-nation (MFN) clause. In turn, reciprocity the that, in negotiating tariff concessions, an attempt is made to balance interests of the participating countries. the During the nineteen-fifties, trade liberalization proceeded on basis of item-by-item negotiations, with the participating countries measture the extent of MVhile thlr ratio of tariffs to dutiable imnports does not appropriately this ratio averaged States, United the 1 n trends. general indicate to used be may it protection, law; and it Hawley-Smoot the under 1930-33 in cent pcr 53 was it* -29; 1922 in cent 38 per History, New York, American in Tariff The Ratner, (Sidney 1957 by cent per 25 to decreased imports declined Van Nostrand, 1972, pp. .52-57). Thc ratio of U.S. tariffs to dutiable (1963-67) negoKennedy-round the and (1960-611 Dillon-round the fllkm,iig furthcr Stales, 1975, p. 22). tiations anid reached 8 per ecnt ¡io 1974 (Statistical Abstrací of the United and Consultant lo tte WorlU Bela Balassa is Professor of Political Fconon!y at the Joh/s Hopkin.s University not be interpreted.lo reflect th1 Bank. The opinions expressed in the paper are those of the author and should views of the ¡WVorld Bank. tihe Present Econoinic Situationt," The paper was presented al the Senitiar on ''Tile Role of íVorld TradeinirMilan o0 March 31, 1978. 7h held and Torno, di Paolo San Bancario l,tstititao lthe by sponsored to Geza Feketekuty, Nicholas author is indebted lo participants a tihe Semninar.for helpftl¿ discuissions and Nadkarniforpreparing tíh Kishore to indebted isfirtíher 1e cortinentís, &aluiable ftin/lirfor jan and Pless, statistical data used in this ptiper. 409 -

410

JOURNAL OF WORLD TRADE LAWV

making offers to each other to lower t;ríiffs in exchiange for tariffreductions on items of export interest to them. After íiiitial successes, this procedure became increasingly cumrbrsonir and was superseded by across-theboard tariff reductionls, first in the Dillon round and subsequendly in the Kennedy round of negotiations, wv%ith exc(,eptioins made for so-called sensitive ¡tenms.

Although most developing cotuntries did not actively participate in trade negotiations in the fiamework of GATT, they enjoved the beinefits of tariff reductions being automatically extenvded to tihem under the application of t.he MEN clause. Indeed, it appears that the benefits of mtultilateral trade liberalization for thc devl(-oping countries far exceeded the benefits they have derived from the applicati>n of the General Preference Scheme w*hich, despite its name, has remained limited in scope.2 And while the elimination of tariffs on intra-area trade in the frarnesork of the European Economnic Commrinity and the European Free Trade Association favored imports from the partner countries over imports from outsiders, including the developing countries, tariffs on these imports were reduced on the average by onc-lialf during the nineteensixties. At the same time, the dex,elopirug couiitries Ijeelfite d from increased demand for their exports that accompaniecd the acclr-Ltícln of economic growth in NVester-n Europe follow iiig the success ofinitcgriition efforts.3 Trade liberalization pertained largel) to raw materials and to manuifactured goods while food ímports rena.,inecl subject to barriers. As tariffs on most raw materials were reduced to low levels by the midfifties, in tliis oaper emphasis will be giveri to trade in manufactured goods.? This choice is also warranted by reasoii of the fact that trade in manufactuired produicts had to bear tlhe brunt of the `new protectionism` since 1973 and that prospective changes iii the internatioinal division of labor between developed aiid developiug cútintries affect primaríly these comnmodities.

International Trade and Economic Growth It has been noted that the elimination of barriers to intra-area trade (cntui

¡litedC to the acceleratiOni of c-Omie growth iin Westernl Eutrope.

More generally, the expansioni of interntimrai trade lhas favorable effects on economic growth. Apart from inprvrnents in resource allocation according to conlparartive advantage, these effects finid their orígin in the exploitationi of large-scale conorn ¡es tlirough thc c(ristrtrctíioll of larger plants (tlie. traclitionial forcm of en