It is a tough time to be a trade hub. On top of slack demand, structural change and commodity price weakness, trading nations, including those in the Middle East, are having to contend with a creeping rise in protectionism.
For an economy such as the UAE’s, at the junction of multiple trade routes, such barriers pose many challenges. Some imports and exports may be affected by the actions of their trading partners. For economies seeking to diversify, such as Saudi Arabia’s under its Vision 2030 programme, the rise of barriers may limit opportunities in some markets.
Let’s step back a bit. At the time of the Great Recession of 2008-09, there were fears of a return to beggar-thy-neighbour protectionist policies. G20 leaders joined together and pledged to refrain from forming new barriers to trade and investment. They have renewed this pledge several times since then, saying they would take actions to roll back any new measures.
What has happened? Despite their undertakings, protectionism has risen steadily.
According to the World Trade Organization, since 2008 the G20 countries have added between 14 and 19 new trade-restrictive measures each month. And, despite efforts to remove some of them, the stockpile is growing. As of October last year, 1,087 measures remained in force. This figure relates only to a relatively narrow definition of measures – those that concern the G20 and which directly affect trade.
If we also consider measures that indirectly distort trade, for example via technical regulations or preferences in government procurement, and if we consider the worldwide stock of measures rather than just the G20, then the figure climbs to 5,072, according to Global Trade Alert.
What these measures individually lack in scope, they make up for in sheer numbers. The B20 business advisory group to the G20 estimates that removing such measures would boost global GDP by US$423 billion and support 9 million jobs.
Protectionism alone does not explain the slowdown in global trade – it stems more from weak demand and the related fall in commodity prices, for example, but it has still reached a scale that is damaging the interests of trading nations.
How can Middle Eastern countries respond? Already some countries have taken a first step by not imposing new measures. Among the G20 countries, Saudi Arabia has shown relative restraint. But more can be done.
Trade liberalisation via new or expanded agreements with trading partners can help to cut through some of these new restrictions. The most effective trade agreements are deep accords that go beyond traditional issues such as tariffs or quotas on goods. They address challenges of intellectual property rights, discriminatory regulation, access to services markets, and sustainability.
The US-Jordan Free Trade Agreement, for example, has helped to boost trade significantly along that trade corridor. Mutual liberalisation with large markets such as the EU or the US can be an important complement to further local integration efforts in the region such as those of the GCC.
But big accords take time to negotiate. Fortunately, some actions can be taken now, unilaterally, by Middle Eastern countries to facilitate trade. For example, addressing costs and impediments related to border clearance procedures. This can benefit the domestic economy by improving access to competitive production inputs as well as easing some of the challenges faced by exporters.
Market openness – for goods and for services – can be an important complement to domestic efforts to diversify. International commerce offers businesses opportunities to develop economies of scale, which in turn may enable them to succeed in a tough competitive landscape. Through specialisation, innovation and branding, they can differentiate products and expand market share.
The Middle East has made progress in liberalising trade. But more work is needed. The efforts in some countries to pursue further trade liberalisation and seek deeper integration into the global economy can help to unlock potential. These efforts offer a positive, welfare-enhancing response to the creeping protectionism that is blighting trade in parts of the world.
Doug Lippoldt is senior trade economist at HSBC.
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