Negative consequences of Special Labelling and Trade-Restrictive measures

In the crisis stricken Eurozone countries the weight of the basics in their consumption spending has greatly increased during the past three years favouring food and energy. (19.4 % and 11.0 %, respectively)

For that food we do find an increase of labelled food, presenting itself as something special or particular of a certain region.

In Europe we can find more towns which start doing the same thing as in medieval times, charging visitors to enter the town by their vehicle. Several places also want to protect their own products and would like to see their name and origin protected. But the entrance of goods from other regions is not liked so much any more, because they could bring the sale of own goods in danger.

The European Commission published yesterday the tenth edition of the report on the monitoring of potentially trade-restrictive measures. This paper of the European Commission’s Directorate-General for Trade gives the latest state of play regarding trade measures which were introduced by the EU’s trade partners between 1 May 2012 and 31 May 2013 and which have the potential to disrupt trade.

The monitoring of such measures was initiated following the breakout of the financial and economic crisis in autumn 2008. It represents an important contribution to the global surveillance on free and fair trade and the monitoring of the G20 anti-protectionism commitment, and is a reflection of the EU’s efforts to continuously enforce existing trade rules, in line with the agenda set out in the EU Communication on Trade, Growth and World Affairs.

Demand from advanced economies is on track to getting back to normal, although differences persist among the output performances of developed countries. Meanwhile, the expectation is that growth in the developing and emerging world will continue to be sustained. Notably, the resilience of many emerging economies in developing Asia has been a crucial factor allowing them to grow even when global conditions were not favourable.

Yet as international production processes rely heavily on the linkages between the production centres in advanced and developing economies through complex value chains, trade remains an important source of economic growth, not only for developed economies, which are still key drivers of global demand, but also for developing and emerging countries.

In this context, further impediments to trade, as we see them occurring, are bound to have negative consequences on global growth and to delay the overall recovery process.

We should all be aware that this looming protectionism is now, more than ever, a significant threat to global growth and welfare, especially as the effects of the economic downturn are still being felt. Were the World Trade Organisation (WTO) to have transparency and monitoring tools, this would facilitate a more effective implementation of the G20 leaders’ pledge and help boost the efficiency of their commitments.

The EU is ready to support further initiatives in St Petersburg to strengthen the implementation of such transparency and monitoring tools. In the last 33 months, more than 350 new measures were adopted, which still represents a high average of more than 10 new measures per month, each of them with the potential to negatively and unnecessarily affect world trade.

In particular, emerging economies led by: Argentina, Brazil, India, Indonesia, Russia, China and also recently South Africa and Ukraine continued to apply the highest number of potentially trade – restrictive measures. This is a striking phenomenon.

Economic growth, the development of efficient value chains, and export activities are intrinsically dependent on imports, so developing countries should have a real interest in avoiding and combatting impediments to trade. By keeping their markets open, these fast developing economies would not only strengthen their competitiveness but also contribute to the economic recovery of other parts of the world, and to an increase in global demand, upon which they themselves depend to a significant extent.

The pace in setting up new stimulus measures, and especially export support measures remained worrying, bearing in mind that some of those provisions are cross-cutting and constitute comprehensive and highly competition-distorting packages. The greatest number of such measures was introduced respectively by Brazil, South Africa, Turkey, Japan and South Korea.

The high number of behind-the-border measures that has been applied by some countries through technical regulations (e.g. China) or through internal taxation schemes based on localisation requirements (e.g. Brazil) has to be again highlighted as a cause of serious concern.

Those who like to protect themselves may not forget that at first the protectionism may have no political cost internally because foreign producers do not vote in the country. By having all sorts of labels products may attract more consumers on the internal market, because it looks like they are buying a superior product. But by the labelling often making the product more expensive and particular foreign shops would not always be eager to bring such limited material on offer. The local producers would have to face the choice of other competitive ‘neutral’ brands. So the labelled product perhaps may sell easily under a nationalistic banner but bringing restrictions to the local producers to become more competitive and stand out in local or foreign markets.

Having one sort of a product labelled as special will demand other producers of a similar product to demand a protection label for their product. For certain products we see already this trend where commercial partners of the protectionist country decide to do the same. It’s not exactly a trade war but the consequences are equally devastating.

Europe, the United States of America and Canada should be very careful in the measures they want to take to protect their export.  All that protectionism may not bring with it that the consumer shall become limited in choice by the reduced international trade.

The main risks facing the United States and Japan relate to fiscal policy and urgent deficit-reduction plans. Inflationary pressure is expected to remain under control in advanced economies, while for some developing countries, notably some Latin American countries and India, there could be an upward trend due to food and commodity prices, as well as the steep depreciation of their currencies.

The global economy will rely on the potential growth of developing countries and emerging markets, whose dynamism has become more important in the path towards economic recovery. The projections confirm a stable performance outlook since the slowdown of 2012, when GDP grew by 5.1%, compared to 6.4% for 2011 and 7.6% for 2010. Forecasts put GDP growth at 5.3% for 2013 and at 5.7% in 2014. As outlined in the 2012 report, the slowdown in economic activity was mainly due to lower demand from advanced economies and to a tightening of macroeconomic policies in certain countries. Interestingly, the regions that are by far performing better in this large and heterogeneous group of countries are Developing Asia and Sub-Saharan Africa. While Developing Asia has seen a slowdown in GDP growth since 2010, which will continue in the near future, Sub-Saharan Africa is expected to grow by 5.6%, a figure that is marginally higher than that of 2010.

As demand from advanced economies goes back to normal the expectation is that growth in the developing and emerging world will increase. Notably, the resilience of many emerging economies in developing Asia has been the cushion that has allowed them to grow even when global conditions were not favourable.

We shall need the EU exports of goods and services to grow and may look forward to an increase by 2% in 2013, while for 2014 the outlook is also very positive, with an estimated export growth at 5%. After a contraction of 0.3% in the last quarter of 2012, forecasts suggest a moderate increase in imports in 2013, at 0.75%. In 2014, as demand grows, imports will accelerate accordingly, with a growth rate forecast of 4.5%. {European Commission, Directorate General for Economic and Financial Affair, European Economic Forecast, April 2013, p.23.}

The use of potentially protective measures by the emerging economies continues to be an element of more comprehensive industrialisation plans. Some of the individual measures applied by these countries have no product-focus but apply across-the-board, either with respect to goods or sectors.

Some of these protectionist trends deserve particular attention as they have a high capacity to disrupt trade, either in the short term – by putting at risk the current business operations of exporters (especially of small and medium enterprises) – or through far-reaching policies having a wide effect.

Import measures such as ad-valorem and specific duty increases, reference import values and minimum import price setting, burdensome licensing,special border fees, tariff quotas, or import and export bans directly hit importation activities, and therefore have an immediate negative effect on trade. The relative increase in the number of these measures means that countries aimed at quickly fixing their internal competitiveness issues with trade-restrictive tools. This is a worrying trend, as it points to the rise of express trade flows regulation and quick “on-demand” protectionism. These measures are often applied without pre-warning for businesses. Whole consignments of goods end-up blocked in customs entry points and warehouses, which means additional costs for companies. What is more, seasonal or perishable products can often totally lose their market value in the process.

Besides pure border barriers, several countries have adopted internal behind-the-border measures as part of the implementation of long term policies aiming at boosting their domestic industries.

Those countries bringing in protective measures often also make laws tath states that import and export of food shall only be done in accordance with national food needs, as a basis for direct restrictions on imports of food. It further establishes labelling requirements and stipulates a government obligation to stabilise food prices. In those countries we see the government having the discretion to take measures limiting or banning imports or exports of goods on the basis of national interest.

Border measures were the largest category of trade-restrictive initiatives adopted during the period covered. Sixty seven of them were introduced, which represented about the same share (44%) in the total number of new measures compared to the previous period. However, within that category, there has been a visible increase in the share of import measures to 38% (which also means a relative decrease in the number of new restrictions applied to exports). These import measures included numerous ad-valorem and specific duty increases (often in packages), reference import values and minimum import price setting, burdensome licensing, non-compliance with WTO-negotiated tariff rates (including attempts to renegotiate those tariffs ex-post), special border fees, tariff quotas (including in zero amounts resulting in a total ban).

An other danger looming is that more countries would require importers to have an importer identification number to be able to import goods into the country, and are only allowed to import one category of goods. Imported goods may not be traded or transferred to other parties. More governments will be imposing the use of import licenses, entry certificates and will be fixing minimum import prices.

These potentially trade-restrictive measures are applied behind the border to regulate domestic markets but they affect overwhelmingly imported goods or economic activities of foreign operators. They include, for example, technical regulations, provisions and incentives in the field of internal taxation, local content requirements aiming at negatively affecting imports, as well as restricting government procurement, investment measures, and measures affecting trade in services.

All the protectionism and the allowance to have companies joining forces to get the pool position on the market bringing more and bigger monopolies and cartels in key industries, makes it worse for the consumer to have free choice of products at a reasonable prize. It also could bring us back to the time when every country produced only for internal consumption using expensive resources and outdated technologies. The higher cost to produce more internally, leads invariably to a fall of the overall output after some time because consumers cannot afford to pay dearly for everything. But this situation also present increasing threats to democracy and the economic liberties.

Therefore Europe should be on the watchtower and look out to take appropriate measures, being careful not to strange itself, like other countries will be doing at the end and be cutting them off from the economical markets.

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Please do read:

How Eurozone consumers spend their income when they have one…

Trade protectionism and cartels threaten democracy

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About Marcus Ampe

Retired dancer, choreographer, choreologist Founder of the Dance impresario office and archive: Danscontact-Dansarchief plus the Association for Bible scholars, the Lifestyle magazines "Stepping Toes" and "From Guestwriters" and creator of the site "Messiah for all". - Gepensioneerd danser, choreograaf, choreoloog. Stichter van Danscontact-Dansarchief plus van de Vereniging voor Bijbelvorsers, de Lifestyle magazines "Stepping Toes" en "From Guestwriters" en maker van de site "Messiah for all".
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