Political Economy and Contingent Protection

Abstract

The growing interest in the political economy of protection and the extensive literature which has already developed around the theme are mainly due to the wide gap between what policy makers practice and what economists preach. Notwithstanding the interesting nuances brought forth by the new trade theory, most economists do not seriously contest the superiority of free trade over protection. But policy makers in almost all countries practice some form of trade-protection. Further, the context within which such practices occur, the extent to which they are resorted or the industries that benefit from them, do not often seem to conform to the traditional explanations of protection such as optimal tariffs, infant industry protection, or the new arguments in favour of international rent shifting in specific 'strategic' sectors. This being the case, the study of the positive theory of trade policy determination has continued to gain ground, with economists borrowing concepts from political science. Most, but not all; such analyses have attempted to explain tariff protection, particularly inter-industry differences in nominal or effective tariff rates. But successive, multilateral trade negotiations have brought down average tariffs to single digit figures. Also agreement has been reached through the Uruguay Round negotiations to reduce the levels of some important types of non-tariff barriers such as agricultural subsidies and export restraints. Although the trend has thus been clearly towards a reduction of the levels of protection, the use of certain selective, unilateral protectionist measures such as anti-dumping and countervailing duty (AD/CVD) measures are very much on the increase. This has raised genuine fears that the codes and regulations which were meant for a corrective purpose are now being increasingly used for legitimising selective, unilateral protection. Although the political economy analysis of this type of contingent protection is still in its infancy, from the trade policy point of view this is an area of considerable importance.