Immunising future trade against protectionists: preventing the emergence of more sensitive sectors

Andrew Elek
AJRC Asia Pacific Economic Papers

Very many goods and services are traded freely among most economies. The recent proliferation
of preferential trading arrangements (PTAs) demonstrates that most economies are willing to eliminate border barriers against substantially all products from almost any other economy.
At the same time, the recent proliferation of PTAs also demonstrates the political
power of producer interests in a few heavily protected sectors, which remain in all economies. The same sensitive products, which are proving hard to liberalise in the Doha Development Agenda of the WTO, or among APEC economies, are also routinely exempted from free trade deals. Any marginal liberalisation of border barriers to these products tends to be negated by product-specific rules of origin and by retaining the right to impose less transparent forms of protection, such as anti-dumping actions.
It will take a long time, in any forum, to reduce the number of products that are already sensitive and, hence, heavily protected by border barriers or other less transparent
forms of contingent protection, such as anti-dumping.Therefore, it is desirable to prevent the emergence of new sensitive products.
This paper proposes collective action by APEC governments to immunise new products against trade policy distortions. It was possible to do so for information technology
(IT) products in the 1990s. Following leadership from APEC governments, there is a WTO-wide agreement that such products should remain freely traded.
That agreement has already helped a growing share of products to remain duty free. The integrity of that agreement has been challenged by some who are seeking to narrow the definition of IT products. APEC governments are looking for ways to preserve the spirit of the Information Technology Agreement (ITA).
In addition to this defensive reaction, APEC governments could also consider a proactive option. It should be possible to build on the IT precedent to cover more, or even all, newly invented products.
The new products to be immunised against trade policy barriers would be those whose intellectual property rights (IPRs) are acknowledged. Immunisation would need to involve more than agreeing to set zero tariffs. It would also be essential to prevent future recourse to other less visible means of protection which discriminate between domestic and international sources of competition.
Such immunisation should be politically feasible. At the time of the invention of new products, the comparative advantage they had for their producers was created by the intellectual property embedded in the new products. Therefore, producers are anxious to protect their IPRs.
In the longer term, such initial advantage can be eroded. For example, close substitutes may be invented, using genuinely different ideas or technology.In that case, comparative advantage would come to depend on relative prices in different economies. As products mature, there will be growing pressure for protection against international competition, risking the future emergence of more sensitive sectors.
This potential problem could be avoided if producers or marketers of new products were required to make a choice between protection of IPRs, or protection by means of trade-distorting measures aimed specifically at international competition.
The short-term costs should be negligible, since no existing jobs or profits would be threatened, while the long-term gains will become significant as the share of new products continues to expand.
To implement this proposal, a group of forward-looking governments could agree that newly invented products could be protected by intellectual property rights, but will not receive protection from future border barriers, or any other trade-distorting policies.
Ideally, such a principle could be adopted WTO-wide, but that cannot be expected at the outset.However, an immunisation initiative could be pioneered by a smaller group of governments which formed an open club that provided incentives for others to join.
A group of Asia Pacific economies could lead the way, as a pathfinder initiative for progress towards APECs agreed Bogor goals. Such an initiative should be launched by as many APEC governments as possible, as part of an effort to accelerate progress towards free and open trade and investment. In time, the policy could be adopted APEC-wide. That would set the stage for a multilateral protocol among many WTO economies that agree to immunise new products against trade policy distortions.