The New Protectionism

The French steel industry has declared that it faces a "manifest crisis," demanding, so far unsuccessfully, that the Common Market permit controls on imports of steel from outside the nine-nation Community. The Canadian and Australian governments have already posted restrictions on textile imports. Last week the British automobile industry, with protectionist action clearly in mind, formally asked the European Economic Community to investigate charges that Japanese cars are being "dumped" in Britain. In the U.S., the United Automobile Workers union is trying to document a suspicion that Volkswagen Rabbits are being dumped in America.

As these rumblings indicate, protectionist sentiment is rising around the world--to no one's surprise. Demands that domestic businesses be shielded against import competition always become more strident during times of spreading unemployment. The real surprise is that despite the severity of the global recession, free traders so far have held the dikes successfully against the protectionist tide; nothing resembling the tariff wars of the 1930s has occurred. Import-limiting actions, as distinct from talk, have been few and scattered. For example, Finland now requires importers to post large bonds, and the Japanese have persuaded several trading partners to limit, voluntarily and temporarily, some shipments to Japan.

No one can be confident, however, that the free traders will continue to win. At the end of May, the 24-member Organization for Economic Cooperation and Development will meet in Paris to renew a free-trade pledge, but Britain's vote, at least, is in doubt. The grim facts of recession can overwhelm the best of intentions, as Australia has already proved. After Prime Minister Gough Whitlam's Labor government took office in 1972, it fulfilled an election pledge for tariff reform by slashing levies 25% across the board. As late as last December, Whitlam was telling Europeans that "a retreat into economic isolation is no answer for us or any other nation." But even as he spoke, his government was beginning to consider re-establishing stiff import quotas and tariffs.

Special Duties. In other countries, though, free traders have been able to work out compromises that help domestic industries while preserving the principle of free competition. The U.S. Government for a while threatened to impose special duties on cheese imported from the Common Market, responding to American dairymen who were annoyed by the agricultural subsidies that European dairy farmers received. But American negotiators persuaded the Europeans to forgo most of the subsidies instead--a move that might cost the Europeans half their $70 million cheese-export business to the U.S. because it will drive up the price of imported cheese in American stores. The duties might have cut sales even more severely. Within the Common Market, pressure from French winegrowers suffering from two years of overproduction led the government in March to restrict imports of cheap Italian wine; at one point some 300 irate viticulteurs occupied the cathedral at Montpellier, refusing to budge until the flow of wine from Italy was stopped. The ban, however, was lifted a month ago.

The recession, meanwhile, is impeding efforts to negotiate still greater freedom of trade. Last week in Geneva, representatives to a GATT (General Agreement on Tariffs and Trade) parley argued over whether tariffs on farm commodities should be handled by an agricultural subcommittee or by a committee with broader authority. U.S. policymakers want to consider them together; in this manner, Americans and Canadians could agree to let in more European industrial exports in exchange for greater freedom of access to the European market for farm goods. For precisely the same reason, Europeans are lobbying against such linked bargaining. Their argument: recent dock blockades, riots and demonstrations by European farmers are ominous signs of a potential social upheaval unless special measures are taken to protect Europe's ancient and comparatively backward agriculture.

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