Creeping protectionism in EU trade policy

26 July 2012

The European Union is increasingly choosing a more protectionist stance over trade policy which will hamper the global economy and the economies of a range of developing countries, warns a new Overseas Development Institute report published today. Containing essays from 20 of the world’s leading experts it reveals a lack of vision and coherence in its approach to developing countries.

The first reform of the EU’s Generalised System of Preferences (GSP) in 30 years will see richer developing countries, such as India and Vietnam, lose trade concessionsof up to €257 million. The EU claims that this will be to the benefit of the poorest developing countries, but our research reveals that, in fact, richer nations such as Switzerland and the USA will reap the rewards, while EU consumers lose out, and the poorest countries hardly gain anything. At the same time, developing countries as– including Kenya, Ghana, Botswana, Namibia and Swaziland - could lose €50 million each year, if these countries do not sign up to the EU’s Economic Partnership Agreements.

ODI’s Dirk Willem te Velde, Head of the International Economic Development Group said:

“Designing a trade strategy in times of economic and financial crisis always carries a risk, and there will inevitably be winners and losers. The clear protectionist trend in the EU’s new strategy will not only damage the developing world, but also European economies and consumers”

“The EU needs to ensure that the next decade of trade policy is fit to confront 21st century trade issues, rather than protecting policies - like the Common Agricultural Policy - that can work counter to growth and development, both in developing countries and the EU”

To read the ODI report in full click here.

Key points:

  • The threat of protectionism
    The trade reforms that the EU is pushing through currently are ones that increase rather than reduce trade barriers; this will hit EU consumers, but also a range of developing countries. GSP reform is likely to impose more trade barriers on a range of products and countries when they are not benefiting from a reciprocal Free Trade Agreement (FTA) with the EU. This threat is not just confined to tariffs. The EU has issued a proposal to close government procurement markets to firms from countries that exclude European firms. Protectionism is not just an EU phenomenon, yet it is ironic that the EU is currently complaining of the protectionist stances of other G20 countries.
    • GSP reform could make richer developing countries – such as India and Vietnam – lose trade concessions of between €187 million to €257 million.
    • 18African, Caribbean and Pacific countries – including countries such as Kenya, Ghana, Botswana and Namibia, Swaziland - could lose €50 million if they do not sign up to an Economic Partnership Agreement.
  • The EU’s approach to developing countries lacks vision and consistency
    In recognition of the growing differences between developing countries in terms of needs and capacities, the EU is changing its policies to ‘differentiate’ more between developing countries. However, there is a clear danger that ‘differentiation’ in the area of trade will be applied without consideration of economic principles. For example, trade theory suggests that lower tariffs (including those applied to emerging powers) are always better, and that differentiation is a distraction.
    • Under current plans, Cuba will be excluded from the GSP and will lose trade preferences, while China will stay in.
  • The latest EU strategy ignores the importance of non-trade policies on growth
    There are myriad ways to achieve the stated goals of the Common Agricultural Policy without having to pay economically inefficient and environmentally harmful subsidies to a selected group of European farmers.
  • The EU’s approach to the role of trade in tackling global problems is defensive.
    The EU has a defensive position on the role of trade in tackling global challenges like climate change and food security, even threatening to impose trade barriers for green purposes. In fact, the opposite needs to occur: free trade can help countries to reap the benefits of economies of scale in green industries and can provide access to water, land,energy and hence food.