'Fortress Europe'' and other myths about trade: policies towards merchandise imports in the EC and other major industrial economies (and what they mean for developing countries)

An export-oriented development strategy has long formed a main thrust of the World Bank ' s advice to developing countries. This paper sets out to examine whether one of the essential preconditions for successful implementation of that advice is valid: whether industrial countries are open to developing countries ' exports. On the basis of what happened to merchandise trade in the 1980s, it concludes that markets were indeed free to imports of manufactures; protectionism was largely a myth. This paper is a revised version of work first published as WPS1098. This revised version takes a somewhat more intensive look at the interactions of trade, growth, and employment in the industrial countries. It concludes that this has not been as smooth and problem-free as some enthusiastic advocates of free trade would have it. During a period of low investment and low growth, some of the potential benefits of free trade cannot be captured, while some of its costs can be immediately felt; when the most intensive competition comes from relatively low wage countries, its impact is most directly felt by labor. In such circumstances, the political attractiveness of protectionism can become huge. However, the paper decisively rejects that route. Protectionism, it argues, would veil real problems, and at best, offer a placebo for real difficulties. Industrial economies, the paper concludes, should not try to hide from competition, but improve their ability to meet it. Annotation World Bank Discussion Paper 225. This paper looks at the role protectionism has played in recent trade policy and its effect on growth and employment in the industrial countries. Not convinced of the benefits of free trade, some industrial countries still employ protectionism. But in recent years many have liberalized their trade policies and moved towards greater reliance on exports. The author analyzes trade policy within this context, paying particular attention to the case of the European Community (EC). He argues that contrary to popular opinion, the use of protectionist policies is in decline. The paper first looks at the impact of exchange rate fluctuations on imports over the course of the 1980s. EC protectionist policies such as the Common Agricultural Policy (CAP) are reviewed. The author then draws comparisons between the EC, Japan, and the United States. The case of imports from developing countries is examined separately in order to evaluate the hypothesis of discrimination against them by industrial economies. The relationships between trade, employment, and protectionism during the recent period of slow economic growth in the industrial countries is also discussed. The author concludes that while protectionism in the short run can ease pressures from competition, only through open trade and sound macroeconomic management can economies adapt to future trade challenges. A summary page in French is also included Revised version of a report published by the World Bank in the Policy research working papers trade policy series.