Protection for Exporters: Power and Discrimination in Transatlantic Trade Relations, 1930–2010

Introduction

1 INTRODUCTION Since the 1930s, transatlantic trade relations have undergone a significant transformation as a series of trade negotiations have dismantled trade barriers that were erected before and during the Great Depression in the early 1930s. Successive trade rounds have reduced tariffs to the point where they are of little relevance in shaping current transatlantic trade flows with respect to most products (see figures I.1 and I.2 for U.S. and European tariff levels over time). In the 1990s and 2000s, international agreements have also imposed restrictions on the use of nontariff barriers.1 This process of transatlantic trade liberalization is arguably one of the key developments in the global political economy over the last century. As a result of this liberalization, in most developed countries trade has grown in importance relative to gross domestic product (GDP) ever since World War II. This rise in international trade flows, in turn, has been a major driving force of globalization, a process that has had far-reaching consequences for societies across the globe. This book is about the political processes that have brought about the liberalization of transatlantic trade. Although, according to economic theory, free trade maximizes the wealth of a country (at least under most circumstances), 1. Alas, to the best of my knowledge, no systematic time-series data for such nontariff barriers are available. Not even Andrew Rose (2004), who lists sixty-eight measures of trade protection and liberalization, mentions time-series data on nontariff barriers. Data in Messerlin (2001, 23–23) show, however, that at least in Europe nontariff barriers are now concentrated on a few tariff lines. 1930 1950 1970 1990 2010 0 5 10 15 20 Average tariff Years FIGURE I.1 U.S. trade liberalization, 1930–2010. Source: U.S. International Trade Commission (2006). 1950 1960 1970 1980 1990 2000 0 2 4 6 8 10 Average tariff Years FIGURE I.2 EU external trade liberalization, 1950–2000. Source: Calculated from data in Eurostat (various); Eurostat (2003); Organization for Economic Cooperation and Development (various). Note: Figures I.1 and I.2 show the U.S.’s and the EU’s trade-weighted average tariff, calculated as duties collected divided by total imports, which is the most frequently used measure of tariff levels. For figure I.2, I used imports from outside the EU only (but not for the period from 1950 until 1960 when duties were still collected on intra-European trade flows), with the five-yearly data taking into account the development in membership from EU-6 (1950–70) to EU-9 (1975–80), EU-10 (1985), EU-12 (1990), and EU-15 (1995–2000). INTRODUCTION 3 the removal of policy interventions intended to limit imports is puzzling since protection seems “eminently reasonable” from a political point of view (Milner 2002, 449). The reason for this is to be found in the distributional effects of trade and the organizational advantages of the losers from increased trade flows. Lower trade barriers favor consumers and, if domestic liberalization is made dependent on foreign liberalization, exporters of goods and services; they also hurt producers and providers of goods and services that compete with imports . Collective-action problems, which arise when the benefits of an action are available to all members of a group regardless of whether they contributed to the costs of provision of the good (Olson 1965), inhibit lobbying by consumers, the main beneficiaries of trade liberalization. With protectionist forces dominating the political process, politicians have an incentive to implement policies that favor import-competing interests (Schattschneider 1935). Scholarly understanding of protectionist policies thus is well advanced; what is less well understood is under which circumstances politicians have an incentive to liberalize trade.This book develops an explanation for trade liberalization, which I call the protection-for-exporters argument and which is based on the premise that exporters lobby more against losses than in favor of gains of foreign market access. In particular, exporters mobilize against losses inflicted on them by the discriminatory trade policies of foreign countries, such as preferential trading arrangements.2 These arrangements, even if they do not give rise to higher external barriers, impose concentrated costs on third-country exporters in the form of trade diversion (Viner 1950; Panagariya 2000). Negatively affected exporters are likely to mobilize in defense of their interests, making it politically reasonable for the government of an excluded country to formulate trade policies aimed at...