Protectionism motivated by self-interest can backfire

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Trade deals are based on the concept of give and take – a reality that protectionists try to ignore. No countries play fair when it comes to trade, pleading the need to protect the interests of their own industries.

The interests of their own consumers are usually not on the agenda, perhaps because consumers are less organised and therefore less powerful than big business lobbies. However, earlier this month, South Africa’s trade officials, lobbying for the extension of a favourable trade arrangement with the US, accepted there could be no take without some give.

After the US-Africa Leaders Summit in Washington, they agreed to review tariffs on US chicken imports – as part of a campaign to get that country to extend the African Growth and Opportunity Act (Agoa) when it expires next year.

Nearly a year ago Trade and Industry Minister Rob Davies hiked import tariffs on five categories of imported chicken, to protect local producers. The move damaged businesses relying on poultry imports – businesses that are major employers – and increased the cost of a high-protein food for consumers.

Moreover, the raised tariffs put US products at a disadvantage in the local market, just two years before Agoa was due to expire. The raising of the barriers to imports prompted protests from US food producers, who said they would oppose the extension of Agoa if protectionism increased in African countries.

Tom Donohue, the president and chief executive of the US Chamber of Commerce, argued recently that, among other things, South Africa would have to repeal anti-dumping measures if it wanted to persuade US businesses to support the attempts to extend Agoa benefits to South Africa beyond 2015.

Last week another trade issue was on the agenda: protectionism in other African countries is creating problems for locally based automotive manufacturers.

The National Association of Automobile Manufacturers of SA (Naamsa) reported a 20 percent fall in exports to Africa between the first half of last year and the first half of this year. Engineering News attributed the fall partly to “sudden and sharp increases in import duties, levied by countries such as Nigeria and Algeria, working to protect and develop their own vehicle assembly industries”.

Naamsa director Nico Vermeulen confirmed that exports to Nigeria had been hit by the introduction of duties on new car imports. And he said Zimbabwe had plans to impose higher tariffs on vehicle imports.

Every country has its own developmental plans – a policy that boils down to tit-for-tat. In a 2011 paper, economist Andreas Freytach argued that “empirical evidence demonstrates that protectionism, being selective and economically distortive, is to the disadvantage of the very country behaving in a protectionist fashion. Although the protected industries can gain from trade protection measures, other industries may suffer severely”.

Freytach noted that trade protection was “a politically attractive policy tool” because “most voters appreciate the immediate gains for the protected industries and underestimate the costs for the economy in the long run”.

He said South Africa’s industrial and trade policy initiatives relied on “old interventionist tools” and only addressed the major problems in the economy.

The major problems he identified were “poor regulation of network industries [such as energy and telecommunications] and administrative burdens”.

Consulting economist Cees Bruggemans also identified underlying problems, particularly relating to the government’s aim to increase the proportion of beneficiated goods in total exports.

Bruggemans said that the shortage of “cost-effective electricity in our heavy manufacturing industry [alone] should place question marks behind any new energy-intensive beneficiation projects, especially of metals”.

Another challenge for entrepreneurs, he said, was that factories and machinery were being “burned down, plundered or otherwise vandalised in union-related labour unrest”.

From a political point of view, it is far easier and more politically acceptable to talk about the merits of a “developmental state” than to tackle controversial problems like the failure to generate adequate electricity and dysfunctional labour relations. But protectionist chicken tariffs always come home to roost.


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