BACKGROUND TO PROTECONISM AND

LIBERALIZAON

REPORTED BY:

izar Nepomuceno
Jeffrey F. Gallano
Carl Vencent Castillon
 Export difficulties can be influenced by various factors, including government
INTRODUCTION regulations and trade barriers. Adam Smith and other political economists
understood the impact of government regulation on trade in the 19th century,
noting that tariffs protected domestic producers from foreign competition.
However, the campaign for free trade in England began in the second quarter of
the nineteenth century, as part of a broader effort for political reform. The reform
act of 1993 introduced polical realignment, and the campaign was led by Richard
Cobden, who demonstrated the importance of pragmatic leadership in promoting
the ideal of free trade. The recent finance crisis has reinforced proteconist
tendencies in some export markets.

Proteconism involves governments placing dues or quotas on imports to protect

domestic industries from global competition. In November 1999, major governments
met at a World Trade Organization ministerial meeting to discuss trading rules.
Despite differing views on free trade, the WTO failed to agree on many issues,
leading to developing countries being sidelined and one delegate physically barred
from a meeting.
 PROTECTIONISM AND LIBERALISM JUXTAPOSED

Proteconism is a government policy that restricts international trade to protect

domestic industries from global competition. It involves placing dues or quotas on
imports to improve economic activity within a domestic economy. Proteconism is
often referred to as a barrier to free trade and may involve other aspects of
international trade, such as product standards and government subsidies.

Critics argue that proteconism can slow economic growth and increase price inflation,
making free trade a better alternative. Proponents argue that proteconism can create
domestic jobs, increase GDP, and make a domestic economy more competitive
globally. The merits of proteconism are a subject of debate.

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 TYPES OF PROTECONIST TOOLS
Import tariffs are a key tool for governments to implement proteconist
policies, with three main concepts: tariffs, import quotas, and product
standards. Tariffs are charged to the import country and documented at
government customs, raising import prices.

Import quotas are nontariff barriers that limit the number of products that can be imported
over a set period, limiting the supply of specified products provided by an exporter to an
importer. This is typically a less drastic approach that has a marginal effect on prices and
leads to higher demand for domestic businesses to cover the gap.

Quotas may also be implemented to prevent dumping, where foreign producers export
products at lower prices than production costs. An embargo is the most severe type of quota,
which prohibits the importation of designated products.
Product standards, which focus on product safety and low-quality products or materials, can
be used as a barrier to limit imports based on a country's internal controls.
 TYPES OF PROTECONIST TOOLS

Countries with lower regulatory standards in food preparation,

intellectual property enforcement, and materials production can
lead to product standard requirements or import blockages.

Restricting imports through product standards can lead to a higher

volume of domestic production.
For example, French cheeses made with raw milk must be aged at least
60 days before being imported to the U.S., providing an advantage for U.S.
producers.

Government subsidies can come in direct or indirect forms, providing businesses with cash
payments or special savings like interest-free loans and tax breaks. Examples of proteconism
include tariffs, quotas, and subsidies, which are used to promote domestic companies by
making foreign goods more expensive or scarce.
 LIBERALIZATION

Trade liberalization is the removal of restrictions on the free

exchange of goods between nations, such as tariffs and nontariff
barriers. Economists view this as a step to promote free trade.
However, trade liberalization is controversial due to concerns about
job losses and the potential for inferior quality and safety of cheaper
goods. Supporters argue that it lowers consumer costs, increases
efficiency, and fosters economic growth. Proteconism, the opposite
of trade liberalization, involves strict barriers and market regulation.
The result of trade liberalization and the resulting globalization is the
concept of globalization.
 ADVANTAGES AND DISADVANTAGES OF
TRADE LIBERALIZAON

Trade liberalization promotes free trade, allowing countries to trade

goods without regulatory barriers or associated costs. This reduces
costs for countries and may result in lower consumer prices. It aims
to increase imports and exports, increasing competition pressures on
domestic companies, leading to more efficient production practices
and increased price competition. This competition may also
encourage countries to focus on industries with competitive
advantages, such as the United Kingdom's service sector.

Trade liberalization can negatively impact certain businesses within a nation due to increase
competition from foreign producers and potential financial and social risks. It can also pose
threat to developing nations as they compete with stronger economies, potentially securing
established industries or hindering the success of newly developed ones. For instance, forme
Soviet countries may attract foreign manufacturers to emerging markets.

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LIBERALIZATION INF THE 19TH CENTURY

In the mid-19th century, trade liberalization policies gained popularity in Europe. In 1860, Great Britain
and France signed a groundbreaking bilateral trade agreement, the "Cobden-Chevalier," which granted
reciprocal tariff concessions. The treaty included a Most Favored Nation (MFN) clause, implying that tariff
concessions automatically applied to other trade partners with similar clauses. Since then, many
countries have signed dozens of trade agreements within less than two decades, creating the "Cobden-
Chevalier network" of bilateral agreements with a "mullateral quality" clause.

The historical narrative of the first wave of globalization suggests that tariff cuts on various
products facilitated trade. However, econometric studies have raised doubts about the
effectiveness of the "Cobden-Chevalier network," stating that it only promoted trade in specific
sectors, highlighting the limitations of the network's trade effects.
 LIBERALIZATION AND PROTECTIONISM IN EUROPE

The European system experienced a brief period of liberal commercial

exchange from the 1830s to the 1870s, dominated by Great Britain. The
Napoleonic Wars unharmed Britain's manufacturing capabilities, and after the
Wars, Britain became the leading creditor country. Britain provided aid and
loans to European nations and exported foreign investment, mainly to the
United States and Asian colonies. The mid-century period of free trade
originated in Great Britain's domestic policies and spread to European nations
through international commercial treaties. The European commitment to free
trade was less enduring than the British, which quickly turned around in the
face of depression in 1870.

In the mid-1850s, Europe experienced a shift towards proteconism as a

response to the impact of rapid technological advancements. This led to a
decline in grain prices and a slump in industrial production, resulting in low
prices and low return on capital. This led to increased internal competition
and pressure for protection against imports. National governments eventually
reversed the period of nearly free trade established before the mid-1850s.
France and the United Nations continued their proteconism, while the UK, low
countries, and Switzerland restricted higher tariffs.
INSTRUMENTS OF INTERNATIONAL TRADE PROTECTION AND PROMOTION

In an ideal world in which the principle of comparave costs specializaon is pracced, there is free
trade and no duty is placed on traded goods. Almost all countries around the world-imposed form
of restricons on the flow of internaonal trade. Despite the advantages of foreign trade, different
governments place restricons on it. These restricons take different forms such as:

A. Total Ban: This involves placing total ban on the importaon of certain commodies, especially
harmful and non-essenal goods.
B. Import quotas or quantave restricons which a redirect restricons on the quanty of goods bought
into the country.
C. Exchange control i.e. the raoning of foreign exchange available for purchases e.g. import
licensing etc.
Others include:
D. Export promoon/subsidies
E. Export dues or tariffs.
 Arowwai Industries

THE CASE FOR PROTECTION

1. Trade restrictions, such as tariffs, quotas, and trade barriers, are often implemented to
safeguard domestic industries from foreign competition, preventing local producers from being
disadvantaged by cheaper foreign goods.
2. Countries may implement export controls to protect national security by restricting trade in
vital products or technologies, such as military equipment and advanced technology, to
prevent their misuse.
3. Economic Stability: Nations may use trade restrictions to maintain economic stability. For
instance, they might impose temporary trade barriers during periods of economic downturns to
safeguard local industries and jobs.
4. 1.Protecting Intellectual Property: Trade restrictions can help protect a nation's intellectual
property rights, such as patents, trademarks, and copyrights. By limiting imports of counterfeit
or pirated goods, countries aim to safeguard their innovators and creators.
5. 1.Addressing Trade Imbalances: Countries may use trade restrictions to correct trade
imbalances. For instance, if a nation consistently imports more than it exports, it might
implement measures to reduce imports and boost domestic production.
6. Environmental and Health Concerns: Trade restrictions can be implemented to address environmental or health concerns.
This includes restrictions on the import of products that do not meet certain safety or environmental standards.
7.1.Political and Diplomatic Leverage: Governments may use trade restrictions as a tool of diplomacy or to exert political pressure
on other nations. Sanctions, for example, restrict trade with countries to promote specific political objectives.
8. 1.Infant Industry Protection: Some countries protect emerging or "infant" industries until they become competitive on the
global stage. This is often done through tariffs and subsidies.
9.1.Retaliation: Trade restrictions can be imposed in response to actions taken by trading partners. If one country feels that another is
engaging in unfair trade practices, it may retaliate with its own restrictions.

It's important to note that while trade restrictions can achieve specific objectives, they can also have unintended consequences,
such as higher prices for consumers, reduced economic efficiency, and strained international relations. Therefore, trade policy
decisions often involve careful consideration of the potential benefits and drawbacks of such measures.
THANK YOU!!!
REPORTERS:
Izar Nepomuceno
Jeffrey F. Gallano
Carl Vencent Castillon