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Trade restrictions
B. Bop
C. Trade restriction on bop
D. Its effects
E. Provisions to safeguard(including wto)
F. Results
G. conclusions
“Are Trade Restrictions to protect B.O.P Becoming
Obsolete?”
With the removal of exchange controls and other restrictions to capital mobility
,the need for and the use of,import restrictions for balance of payment reasons,as
provide for under GATT Articles 12 and 18 ;B ,has diminished. Since a recent
WTO ruling also seems to have put a stop to developing countries ,using the
ambiguity of treating language to justify measures designed to protect their
domestic industries,there is reason to expect that trade restrictions justified with a
foreign exchange crisis will finally fall into disuse.
The most common types of trade restrictions include tariffs, quotas, subsidies and
embargoes. Governments impose trade restrictions for a variety of reasons, often
under pressure from industries that lobby for protection from foreign competition.
Governments also cite national security and protecting domestic jobs as other
reasons for imposing limits on trade.
1. Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff
rates usually vary according to the type of goods imported. Import tariffs
will increase the cost to importers, and increase the price of imported goods
in the local markets, thus lowering the quantity of goods imported. Tariffs
may also be imposed on exports, and in an economy with floating exchange
rates, export tariffs have similar effects as import tariffs. However, since
export tariffs are often perceived as 'hurting' local industries, while import
tariffs are perceived as 'helping' local industries, export tariffs are seldom
implemented.
2. Import quotas: To reduce the quantity and therefore increase the market
price of imported goods. The economic effects of an import quota is similar
to that of a tariff, except that the tax revenue gain from a tariff will instead
be distributed to those who receive import licenses. Economists often
suggest that import licenses be auctioned to the highest bidder, or that
import quotas be replaced by an equivalent tariff.
3. Administrative Barriers: Countries are sometimes accused of using their
various administrative rules (eg. regarding food safety, environmental
standards, electrical safety, etc.) as a way to introduce barriers to imports.
4. Anti-dumping legislation Supporters of anti-dumping laws argue that they
prevent "dumping" of cheaper foreign goods that would cause local firms to
close down. However, in practice, anti-dumping laws are usually used to
impose trade tariffs on foreign exporters.
5. Direct Subsidies: Government subsidies (in the form of lump-sum payments
or cheap loans) are sometimes given to local firms that cannot compete well
against foreign imports. These subsidies are purported to "protect" local
jobs, and to help local firms adjust to the world markets.
6. Export Subsidies: Export subsidies are often used by governments to
increase exports. Export subsidies are the opposite of export tariffs,
exporters are paid a percentage of the value of their exports. Export
subsidies increase the amount of trade, and in a country with floating
exchange rates, have effects similar to import subsidies.
7. Exchange Rate manipulation: A government may intervene in the foreign
exchange market to lower the value of its currency by selling its currency in
the foreign exchange market. Doing so will raise the cost of imports and
lower the cost of exports, leading to an improvement in its trade balance.
However, such a policy is only effective in the short run, as it will most
likely lead to inflation in the country, which will in turn raise the cost of
exports, and reduce the relative price of imports.
Balance Of Payments
1. Current account :
It deals with the movements of merchandise (goods) by way of exports and
imports. The merchandise may be private or Governmental. Merchandise is
a major item on the current account. Other items appearing under current
account include :
Transportation, insurance, tourism, and foreign remittances are called
as the invisibles because it involves foreign exchange flows but has no
physical movement of goods. The remittances can be in or out of the
country. Other items are non-monetary gold and miscellaneous head for
non-classified current transactions.
Each one of these items have a credit or debit depending on the
principles of double entry book keeping.
On current account there can be deficit or surplus, depending on the
nature of transactions.
The position on the merchandise account is called the balance of
trade. The difference between exports and imports determine the position of
balance of trade. It is an important indicator because it will highlight the
foreign exchange commitments of the country with respect to each country
and currency.
2. Capital account :
It deals with capital movements between one country and rest of the
world. Capital movements can be private, governmental or institutional
( IMF, World Bank and others).It can be again classified as short term and
long term capital movements.
Other items include amortisation, debt servicing, monetary gold and
miscellaneous. Amortisation is the loan liquidated, debt servicing is the
repayment of principle and interest and non-monetary gold is the payments
made interms of gold.
These capital transactions will also have a debit or credit depending
on the directions of flows. Capital account can show a deficit or a surplus
revealing the strength of the economy. The deficits of the current account
will be financed by the capital account. So there is a spill over of deficits of
current acceptant into capital account.
II) Non-monetary methods : Non-monetary methods deal with real sector for
correcting BoP disequilibrium. All the non-monetary methods directly affect
exports and imports. Following are the important non-monetary methods :
1. Export Promotion : The country with deficits can take up export promotion
measures like providing fiscal incentives, financial aid, Infrastructural facilities,
marketing support and support of imported inputs.
The Government offers a package of tax incentives which will reduce the
costs and make exports competitive in the world market.
2. Import Substitution : The economy can progressively develop technology of
import substitution. A country produces those goods which were earlier
imported. It may require import of capital goods, technology or collaborations.
3. Import Licensing : The Government can have stringent controls over the usage
of imports. This can be done by licensing the users based on centralised
imports.
4. Quota : Import quotas are important non-tariff barriers. They are positive
restrictions on incoming goods.
5. Tariffs : Tariff is a tax duty levied on imports. The objective is to make imports
expensive, which will in turn produce domestic demand and make home
industry competitive.
When nations specialize and trade, total world output is increased. Companies
produce for foreign markets as well as domestic markets (markets in the home
country). Exports are the goods and services sold in foreign markets. Imports are
goods or services bought from foreign producers.
In spite of the benefits of international trade, many nations put limits on trade for
various reasons. The main types of trade restrictions are tariffs, quotas, embargoes,
licensing requirements, standards, and subsidies.
A tariff is a tax put on goods imported from abroad. The effect of a tariff is to raise
the price of the imported product. It helps domestic producers of similar products
to sell them at higher prices. The money received from the tariff is collected by the
domestic government.
A quota is a limit on the amount of goods that can be imported. Putting a quota on
a good creates a shortage, which causes the price of the good to rise and allows
domestic producers to raise their prices and to expand their production. A quota on
shoes, for example, might limit foreign-made shoes to 10,000,000 pairs a year. If
Americans buy 200,000,000 pairs of shoes each year, this would leave most of the
market to American producers.
Standards are laws or regulations that nations use to restrict imports. Sometimes
nations establish health and safety standards for imported goods that are higher
than those for goods produced domestically. These have become a major form of
trade restriction and are used in different amounts by many countries.
They all limit world trade, which means a reduction in the total number of goods
and services produced. They shift production from more effective exporting
producers to less effective domestic producers.
When production is lowered, there are fewer workers earning income. Trade
restrictions also raise prices, which is usually their main purpose.
Trade limits in one country, moreover, usually lead to limits being imposed in
other countries. If the United States places a high tariff on cars made in Japan, for
example, Japan may then put tariffs on American goods sold in Japan.
Governments are eager to protect what are called strategic industries. These have
included industries, such as steel, cars, chemicals, and munitions, that are imported
during a war. Today, they are more often the high tech, high wage industries like
commercial aircraft production. One way of insuring that they remain strong is to
protect them from foreign competition. Agriculture is another area that many
governments try to protect. Tariffs and subsidies help make sure that domestic
farmers can earn enough profits to continue farming.
The decision to use trade restrictions like tariffs is an important one. Tariffs help
some domestic industries, but they mean higher prices for buyers. They help the
owners and workers in the protected industries. They hurt the people who have to
pay higher prices for the goods those industries make. Reducing imports reduces
the income of foreigners. They will reduce their foreign purchases, hurting
exporting industries and workers in the nation that put the tariff on the imports.
Without much competition, companies may also use less efficient production
methods. This can lead to poorer quality as well.
It is in the best interest of the world economy for each nation to trade freely with
all other nations. However, this practice does not always benefit every nation. For
example, exporters who control a large part of the world's supply of a product can
use trade restrictions to change the terms of trade, reducing the amount of their
goods and services they must give up to obtain imports. This was done by the
Organizations of Petroleum Exporting Countries (OPEC) when they restricted their
output of oil in the 1970s. By driving up the price of oil they were able to get more
imports for less oil.
Most arguments for trade restriction benefit protected industries and their workers.
They also create much greater losses for a nation's economy. In the long run, a
nation must import to export.
Trade Restrictions for Balance-of-Payments
Articles XII to XIV of the GATT elaborate a complex code designed to govern and
discipline the use of trade restrictions for balance of payments purposes. Article
XII:1 states the basic right of any Contracting Party to impose quantitative
restrictions in derogation from Article XI ‘in order to safeguard its external
financial position and its balance of payments’. Article XII:2 establishes that such
restrictions shall be limited to what is ‘necessary: (i) to forestall the imminent
threat of, or to stop, a serious decline in monetary reserves, or (ii) in the case of a
Contracting Party with very low monetary reserves to achieve a reasonable rate of
increase in its reserves’. As well, such restrictions must be progressively relaxed as
the balance of payments improves.
Furthermore, Contracting Parties ‘undertake, in carrying out their domestic
policies, to pay due regard to the need for maintaining or restoring equilibrium in
their balance of payments on a sound and lasting basis’ (XII:3). At the same time,
no Contracting Party is obligated to take domestic balance of payments measures
that would threaten the objective of full employment (i.e. contracting the domestic
money supply to dampen demand for imports, XII:3(d)). A process of
consultations is envisaged with the GATT Council concerning any new restrictions
or increase in restrictions, with periodic review of the necessity of the trade
measures and their consistency with Articles XII–XIV. In addition, Article XII
contains provisions on dispute settlement, including the authorization of retaliation
where a Party persists in trade restrictions that have been found by the Contracting
Parties to violate the GATT.
Articles XIII and XIV contain, respectively, the requirement that measures taken
pursuant to Article XII:1 be implemented on a non-discriminatory basis and certain
narrow exceptions to this non-discrimination requirement, e.g. where
discriminatory exchange controls have been authorized by the IMF (see the
discussion of substitutability below).
In the case of developing countries, there is a much broader exemption for balance
of payments-based trade restrictions. Hence, Article XVII:2(b) states the principle
that developing countries should have additional flexibility ‘to apply quantitative
restrictions for balance of payments purposes in a manner which takes full account
of the continued high level of demand for imports likely to be generated by their
programmes of economic development’.
What this suggests is that even though a developing country could address its
balance of payments difficulties through exchange rate adjustments or tighter
macroeconomic policies, it should not be expected to do so given the harm to
development that may come from the resultant decline in needed imports. It is
recognized that quantitative restrictions will allow a developing country to
conserve its limited foreign currency resources for purchases of imports necessary
for development – whereas an exchange rate devaluation would result in all
imports becoming more expensive. In this connection, it bears emphasis that
balance of payments restrictions in general may be discriminatory with respect to
products although not with respect to countries. Indeed, it is explicitly stated that
‘the contracting party may determine (the) incidence (of restrictions) on imports of
different products or classes of products in such a way as to give priority to the
importation of those products which are more essential in the light of its policy of
economic development’ (XVIIIB(10)).
In 1979 the Contracting Parties, without formally amending the General
Agreement, made the ‘Declaration on Trade Measures taken for Balance-of-
Payments Purposes’,14] which expanded the ambit of Articles XII–XIV and XVIII
beyond quantitative restrictions to include ‘all import measures taken for balance
of payments purposes’. The Declaration also imposes an obligation on Contracting
Parties taking such measures to ‘give preference to the measure least restrictive of
trade.’ The Understanding on the Balance of Payments Provisions of the General
Agreement on Tariffs and Trade 1994, incorporated in the Uruguay Round Final
Act, is aimed at improving GATT/WTO discipline of trade measures taken for
balance of payments purposes. Members commit themselves to publish, as soon as
possible, time-schedules for the removal of such trade measures. Such schedules
may, however, be modified ‘to take into account changes in the balance-of-
payments situation’ (Article 1). Furthermore (and perhaps the most important
modification of the existing GATT regime), Members commit themselves to give
preference to trade measures of a price-based nature, such as tariff surcharges, and
to only resort to new quantitative restrictions where ‘because of a critical balance-
of-payments situation, price-based measures cannot arrest a sharp deterioration in
the external payments position’ (Articles 2, 3). The Understanding further sets out
an elaborate set of procedures for review by the Committee for Balance-of-
Payments Restrictions of both the time-schedules for elimination of existing
restrictions and notifications of any new restrictions. The overall intent appears to
be that of placing balance of payments trade restrictions under ongoing scrutiny,
with a view to their elimination as soon as possible. This is consistent with the
original GATT regime, where such restrictions are envisaged as temporary, and not
an appropriate longer-term solution to payments imbalances. It is also, however,
something of a retreat from the more permissive approach to such restrictions
reflected in the Tokyo Round declaration.
Pursuant to the Understanding, on 31 January 1995, the WTO General Council
established the WTO Committee on Balance-of-Payments Restrictions. From its
inception through 2003, the Committee has conducted consultations with
numerous Members concerning the existence and possible reduction and phase-out
of their balance of payments restrictions, including Brazil, South Africa, Slovakia,
Poland, Sri Lanka, India, Egypt, Turkey, Tunisia, Hungary, Nigeria, Bangladesh,
the Philippines, the Czech Republic, Bulgaria and Pakistan. In most cases,
Members made commitments to eliminate or reduce the restrictions in question,
which satisfied the Committee. In some instances, with respect for example to
India and Tunisia, there was some controversy within the Committee itself as to
how rapidly the balance of payments situation of the country would reasonably
permit the removal of measures.
Dissatisfied with the lack of consensus on India’s use of balance-of-payments
based trade restrictions, the United States challenged India’s continued use of
balance of payments-based trade restrictions in dispute settlement, claiming
violations of the GATT and the BOP Understanding. A key threshold issue was the
relationship between the mandate of the BOP Committee and the jurisdiction of the
WTO dispute settlement organs; India argued that, given the explicit role of the
Committee in the surveillance of the challenged measures, the dispute panel should
defer to that process. The panel below found that the competence of the BOP
Committee and that of the panel were not mutually exclusive in these matters.
India appealed this finding.
The Appellate Body (AB) first observed, in disposing of this appeal that, according
to Article 1.1 of the Dispute Settlement Understanding (DSU), the dispute
settlement procedures in the DSU apply generally to disputes brought under the
dispute settlement provisions of the covered agreements (in this case Article XXIII
of the 1994 GATT), and that furthermore the DSU rules and procedures are subject
only to special or additional rules identified in agreements as listed in Appendix 2
of the DSU. The AB noted that ‘Appendix 2 does not identify any special or
additional rules or procedures relating to balance of payments restrictions’ (para.
86). In particular, it did not mention Article XVIII:B of the GATT, which calls for
review by the CONTRACTING PARTIES of balance of payments restrictions
maintained on the basis of developmental considerations set out in XVIII:B. Thus,
one could not infer any limitation on the rights of access to dispute settlement
under the DSU, or on the competence of panels to interpret and apply the balance
of payments provisions of the GATT, from the grant of competence to review X
VIII:B justifications for such restrictions to the CONTRACTING PARTIES. India,
however, also argued that GATT practice with respect to Article XXIII precluded
access to dispute settlement for balance of payments purposes. Since Article XXIII
is the very basis on which DSU procedures may be invoked in the case of the
GATT, practice with respect to Article XXIII of the GATT is relevant to the
ultimate scope and limits of authority of panels and the AB when they are applying
the GATT. Here, however, whatever pre-existing GATT practice existed in this
matter was codified and perhaps also modified by the BOP Understanding
negotiated in the Uruguay Round. The second sentence of footnote 1 to the BOP
Understanding reads: ‘[t]he provisions of Articles XXII and XXIII of GATT 1994
as elaborated and applied by the Dispute Settlement Understanding may be
invoked with respect to any matters arising from the application of restrictive
import measures taken for balance-of-payments purposes’. Here, India argued that
the expression ‘application’ somehow limited the competence of the dispute
settlement organs in balance of payments disputes, in favour of that of the
Membership, sitting as the BOP Committee. The distinction that India drew was
between disputes about the ‘application’ of balance of payments measures and
those that concerned the substantive justification of the measures.
The AB, however, held that the use of the word ‘application’ merely reflected
‘traditional GATT doctrine that, with the exception of mandatory rules, only
measures that are effectively applied can be the subject of dispute settlement
proceedings’ (para. 93). But, at first glance, this very interpretation would seem to
risk reducing the word to complete inutility – as that much, the AB is saying, has
already been established by GATT practice. However, the BOP Understanding is
intended to ‘clarify’ Articles XII and XVIII:B of the GATT. Such clarifications
provide greater legal certainty and security, but will amount in large measure to
restatements of what a sound treaty interpreter would already find to exist in the
status quo. The assumption in treaty interpretation developed in Reformulated
Gasoline and subsequent cases that each treaty provision should be assumed to
have a discrete, non-redundant legal meaning may have to be modified in cases
where the text being interpreted is an understanding that clarifies and largely
affirms other, existing legal provisions.
What the Appellate Body did was to rely entirely on a judgment of the IMF
that India did not need to change its development policies because it could address
the consequences of removing its balance-of-payments-based import restrictions
through “macroeconomic” policies.
Had the Appellate Body considered development policy informed by a conception
of equity that includes the notion that development policy is a matter in the first
instance for participation of those who are affected, it would have analyzed the
legal issue quite differently.
First of all, the Appellate Body would not have accepted that one institution,
and particularly, the technocrats in that institution have “ownership” of the
meaning of a “development” policy. Secondly, the Appellate Body would not have
embraced the stark contrast between “development policy” and macroeconomic
policy. This implies that development policy is restricted to a series of techniques
that “experts” view as formulae for “development,” rather than including all those
policies that people—in this case, at a minimum, India and Indians—see as
affecting the fulfillment of their approach to development. From the perspective of
equity, as informed by the social and economic rights recognized in the UN
Covenant on Social, Economic and Cultural Rights, it would be obvious that
macroeconomic policies, which affect revenues available for government
programmes to fulfill social and economic rights, as well as the cost of imported
goods and services needed to fulfill such rights and the reserves of currency with
which to pay for them, are “development policies.”
Thirdly, on the question of whether India would be required to change its
development policy in order to be able to remove the balance of payments
restrictions without a return to the crisis conditions that led to their imposition, the
Appellate Body and the panel ought to have, for purposes of equity and coherence,
considered and indeed solicited the views of a broader range of institutions and
social actors—at a minimum the international organizations with express mandates
on development, such as UNCTAD and the UNDP.
Finally, the Appellate Body might have considered that the provision in question is
largely a matter of self-declaration—that it empowers India and above all Indians
to chart their own course in development policy, and therefore that the provision is
not intended to invite the dispute settlement organs to examine de novo India’s
judgment that if it removed the restrictions, it would have to change its
development policy.
In sum, even if the overall orthodox economic preference for macroeconomic
measures over trade restrictions is correct, in the realm of the second best, trade
restrictions at least of a temporary nature may be a desirable alternative to a
macroeconomic policy move that leaves very severe social and economic
consequences.
EXISTING BOP SAFEGUARDS IN INTERNATIONAL
AGREEMENTS
It has been noted that most BITs do not include explicit BOP safeguards. However,
somerecent bilateral and regional agreements, such as the NAFTA, allow
restrictions on capital movementsin cases where a Party “experiences serious
balance of payments difficulties, or the threat thereof...”.
The OECD Codes, Article 7 (c), provide that members may temporarily suspend
their measures of liberalisation “if the overall balance of payments of a member
develops adversely at a rate and in circumstances, including the state of its
monetary reserves, which it considers serious...”.
The common features of most BOP safeguards is that restrictions should: be taken
in a nondiscriminatory manner; be applied for a limited period of time; and be
consistent with the IMF provisions.
Under the IMF Articles of Agreement, beyond the requirement for members to
obtain approval to maintain existing restrictions on current payments and transfers,
members may be allowed to take special exchange measures, including restrictions
on current transactions for BOP reasons.
Article XII
XII:1: "Notwithstanding the provisions of paragraph 1 of Article XI, any
contracting party, in order to safeguard its external financial position and its
balance-of-payments, may restrict the quantity or value of merchandise
permitted to be imported".
XII:2(a): "Import restrictions instituted, maintained or intensified by a
contracting party under this Article shall not exceed those necessary:
(i) to forestall the imminent threat of, or to stop, a serious decline in its
monetary reserves, or
(ii) in the case of a contracting party with very low monetary reserves,
to achieve a reasonable rate of increase in its reserves.
* Due regard shall be paid in either case to any special factors which may
be affecting the reserves of such contracting party or its need for reserves,
including, where special external credits or other resources are available to it, the
need to provide for the appropriate use of such credits or resources".
Article XII
XII:1: "In the event of serious balance-of-payments and external financial
difficulties or threat thereof, a Member may adopt or maintain restrictions on
trade in services on which it has undertaken specific commitments, including on
payments or transfers for transactions related to such commitments. It is
recognized that particular pressures on the balance of payments of a Member in
the process of economic development or economic transition may necessitate the
use of restrictions to ensure, inter alia, the maintenance of a level of financial
reserves adequate for the implementation of its programme of economic
development or economic transition".
XII:5(e): "In consultations, all findings of statistical and other facts presented by
the International Monetary Fund relating to foreign exchange, monetary
reserves and balance of payments, shall be accepted and conclusions shall be
based on the assessment by the Fund of the balance-of-payments and the
external financial situation of the consulting Member".
Application of Measures
para. 1: "Members confirm their commitment to announce publicly, as soon as
possible, time-schedules for the removal of restrictive import measures taken
for balance-of-payments purposes. It is understood that such time-schedules
may be modified as appropriate to take into account changes in the balance-
ofpayments
situation. Whenever a time-schedule is not publicly announced by a
Member, that Member shall provide justification as to the reasons therefor".
para. 2: "Members confirm their commitment to give preference to those
measures which have the least disruptive effect on trade. Such measures
(referred to in this Understanding as "price-based measures") shall be understood
to include import surcharges, import deposit requirements or other
equivalent trade measures with an impact on the price of imported goods. It is
understood that, notwithstanding the provisions of Article II, price-based
measures taken for balance-of-payments purposes may be applied by a
Member in excess of the duties inscribed in the Schedule of that Member.
Furthermore, that Member shall indicate the amount by which the price-based
measure exceeds the bound duty clearly and separately under the notification
procedures of this Understanding".
para. 3: "Members shall seek to avoid the imposition of new quantitative
restrictions for balance-of-payments purposes unless, because of a critical
balance-of-payments situation, price-based measures cannot arrest a sharp
deterioration in the external payments position. In those cases in which a
Member applies quantitative restrictions, it shall provide justification as to the
reasons why price-based measures are not an adequate instrument to deal with
the balance-of-payments situation. A Member maintaining quantitative
restrictions shall indicate in successive consultations the progress made in
significantly reducing the incidence and restrictive effect of such measures. It is
understood that not more than one type of restrictive import measure taken for
balance-of-payments purposes may be applied on the same product".
para. 4: "Members confirm that restrictive import measures taken for
balance-of-payments purposes may only be applied to control the general level
of imports and may not exceed what is necessary to address the balance-
ofpayments
situation. In order to minimize any incidental protective effects, a
Member shall administer restrictions in a transparent manner. The authorities of
the importing Member shall provide adequate justification as to the criteria used
to determine which products are subject to restriction. As provided in paragraph
3 of Article XII and paragraph 10 of Article XVIII, Members may, in the case of
certain essential products, exclude or limit the application of surcharges applied
across the board or other measures applied for balance-of-payments purposes.
The term "essential products" shall be understood to mean products which meet
basic consumption needs or which contribute to the Member's effort to improve
its balance-of-payments situation, such as capital goods or inputs needed for
production. In the administration of quantitative restrictions, a Member shall use
discretionary licensing only when unavoidable and shall phase it out
progressively. Appropriate justification shall be provided as to the criteria used to
determine allowable import quantities or values".
Note 1: "Nothing in this understanding is intended to modify the rights and
obligations of Members under Articles XII or XVIII:B of GATT 1994. The
provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied
by the Dispute Settlement Understanding may be invoked with respect to any
matters arising from the application of restrictive import measures taken for
balance-of-payments purposes".
Our analysis finds that newly implemented trade restrictions have already had a
strong negative impact; fortunately, they have covered only a small share of
trade.There is strong statistical evidence that trade in products targeted by
protectionist measures indeed declined significantly. And if protectionist measures
become widespread or are allowed to balloon, this would cause significant harm to
global trade and stifle the broader economic recovery. The impact on targeted
products is apparent from the raw data, as shown below, but we also use
econometric methods to confirm this rigorously and to estimate the
quantitative effect on aggregate trade.
We match data on measures from the monitoring activities with detailed data on
actual trade flows. For an intuitive sense of whether new measures have affected
aggregate trade, we examine how (within the same product category) bilateral
trade targeted by new measures has evolved as compared to bilateral trade that has
not been targeted by new measures. More specifically, we use monthly bilateral
(import and export) trade values at the 4-digit (HS) product level, as reported by
the largest trading countries through late 2009.16 To identify those trade flows
targeted by new measures, we then use information from the GTA
database on the 4-digit product category (or categories) and bilateral trade partners
targeted by a new measure and the month in which the measure was implemented.
A wide array of measures is considered (Figure 7), some of which restrict imports
and others that restrict or support exports. In total, we incorporate information on
184 measures identified by GTA as highly likely to be discriminatory (the so-
called “red measures”).
The negative impact of import restrictions is apparent in the raw data. To assess the
trade impact of new measures we must account for the uneven effect of the
demand shock caused by the global crisis. For example, the crisis affected trade in
some products (such as durables) more than others. To separate the effects of the
demand shock from those of the trade restrictions, we examine products in every
time period separately and compare howtrade performed in bilateral trading
relationships (“country-pairs”) targeted by new measures, relative to those not
targeted by new measures. Figure 8 illustrates the results of this comparison for
products on which new import-restrictive measures were introduced in aparticular
month, November 2008. It shows that, indeed, imports targeted by new restrictions
declined more than did world trade in the same products. Replicating Figure 8 for
importrestricting measures imposed in other months demonstrates that they also
generally had a negative impact (Figure 9).
Export subsidies and restrictions distorted trade as well. Analogous graphs for
export subsidies and export restrictions are also presented in Figure 9. As expected,
export subsidies seemingly increased targeted exports relative to world trade of the
same products. Export restrictions also seem to have led to increased trade. This
(initially puzzling) result is largely because the category includes measures that
reduce (as well as intensify) export restrictions.
Econometric analysis serves to quantify the impact of new trade restrictions on
actual trade (see Annex for more detail). Henn and McDonald (2010) analyze how
new trade restrictive measures have impacted detailed (4-digit) bilateral monthly
trade flows, after accounting, via different fixed effects, for changes in trade flows
due to other determinants than new trade restrictions. These determinants account
for the facts that: (i) the crisisinduced more severe changes in demand for some
types of products than for others; (ii) as thecrisis progressed, some countries faced
more severe declines in income than did other countries; and finally (iii) bilateral
exchange rates, inflation differentials, and the costs of
transport between any two countries may have varied as the crisis developed.
The statistical results confirm the distortionary effect of new trade restrictions
suggested in Figures 8 and 9. Across various econometric specifications, new
measures arefound—with a high degree of statistical confidence—to discriminate
against targeted trade flows. Our basic specification represents a close statistical
analogue to the figures. The statistical estimates emerging from this basic
specification suggest that a new restriction is associated with about an 8.5 percent
distortion to trade (Annex, Table 1). A refined specification finds that a part of this
8.5 percent impact is attributable to other trade
determinants. After accounting for these determinants, a new restriction is still
responsible for a 3 percent distortion to trade. The magnitude of this effect is
striking, as it applies to entire 4-digit product categories—although most trade
measures only cover a portion of these categories. This suggests that the impact on
the products specifically affected may be considerably larger. Detailed analysis in
the Annex separately quantifies the impact of different types of measures: import
restrictions, export restrictions, and export support measures.
Measures distorted aggregate world trade by about 0.25 percent.19 We obtain this
result by multiplying the refined product-level estimates (Annex, Table 2) by the
amount of trade subject to measures of each type. The estimates of various
specifications imply that measures distorted aggregate global trade by between 0.2
and 0.7 percent.
Balance of payment restrictions
The records of the Balance of Payment (BOP) Committee of the WTO and the
trade reviews show a considerable decline in the use of quantitative restrictions for
BOP reasons over the last decade. This development is largely due to the
tightening of existing GATT rules as a result of the Uruguay Round
and the stricter enforcement related to the use of these measures.
- as a general rule, that members allow: all current and capital transfers related to
established
investments, and; as far as the making of new investments is concerned, all current
and capital
transfers related to those investments covered by the countries’ sectoral list of
commitments.
- as an exception, a safeguard clause to preserve members in case of serious BOP
difficulties.
This provision should allow temporary restrictions on the outflows of current and
capital
transfers related to those investments covered in the IDF.