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Protectionism in the European Community Against Brazilian Exports

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Protectionism in the European Community Against Brazilian Exports INSTITUTE FOR ECONOMIC AND SOCIAL PLANNING (IPEA) ECONOMIC COMISSION FOR LATIN AMERICA AND THE CARIBBEAN (ECLAC) - IPEA/ECLAC AGREEMENT - PROTECTIONISM IN THE EUROPEAN COMMUNITY AGAINST BRAZILIAN EXPORTS BRASÍLIA, 1985 LC/BRS/CONV./L.04 Brasilia. 1985 CONTENTS Esa? PREFfiCE 1 I - THE EUROPEAN COMMUNITY AND THE WORLD ECONOMIC CRISIS a) Introduction 3 b) The external position of the European Community ... 5 c) The EC in a multipolar systeiti 8 d) New orotect i on i sm 9 II - TRADE RELATIONS BETWEEN BRAZIL AND THE EUROPEAN COMHUNITY a) Introduction b) The EC as a market ior developing countries 21 c) The role of agroindustrial product in Brazilian exports 21 d) Brazil's exports of raw materials to the EC 22 e) Brazil's exports of industrial products to the EC . 22 III - MAIN POLICY AREAS OF THE EUROPEAN COMMUNITY a) Introduction 35 bl Competition policies 35 c) State aid 37 d) Loans and grants 38 e) The steel industry 39 f) Textiles and clothing 42 g) The Common Agricultural Policy 44 h) Main instruments of the EC's agricultural policy .. 45 i) The future of the CAP 48 j) The role of pressure groups 49 I;) The central interest groups 51 1) Viewpoints of the main interest groups on trade relations with developing countries 54 IV - SELECTIVE PROTECTIONISM IN THE EUROPEAN COMMUNITY ai Toward a community policy 69 b) Basic instruments 69 c) Selective tariff protection 70 di The Generalised System of Preferencies (GSP) 71 el The role of nontariff barriers 75 f) Quantitative restrictions 80 g) Anti-dumping and countervailing duty measures 83 V - TRADE COVERAGE OF EC IMPORT RESTRICTIONS FACING BRAZIL a) Areas of trade conflict 95 b) Tariff protection 97 cl Trade coverage of EC import restrictions facing Brazil 98 VI - CONCLUSIONS 119 BIBLIOGRAPHY 123 PREFACE This study an trade relations between Brazil and the European Community 1/ was undertaken within the -frainawork o-f the IPEfl-ECtflC flgreeraent 2/ as part of a joint research programme. The institutions share an interest in analysing recent developments in Brazilian exports to the industrialized countries and the relative importance of import restrictions to these trade •flows. The present study is the second of a series o-f studies on this theme and iollows a study on trade relations between Brazil and the United States 3/. The -first chapter provides a brie-f description of the competitive position o-f the EC in the world economy and on some structural and cyclical developments in the European economies. Chapter II presents an overview o-f recent developments in bilateral trade between Brazil and the EC. Chapter III gives an overview of the main areas o-f EC economic policy, especially i ndustri al aid policies and the Common Agricultural Policy, and the role o-f interest groups in European policy making. Chapter IV describes the basic instruments which are used at the Community level to protect troubled industries against -foreign competition. It also examines the Generalized System oí Preferences ÍGSP) of the EC. Chapter V provides data and background information on EC import restrictions affecting Brazil and estimates their trade coverage. The main conclusions of this study are presented in the final Chapter (VI) This study was prepared by Gerard de Groot, economist at the Development Research Institute (IVO) of the University of Tilburg, the Netherlands, and Rene Vossenaar of the ECLfiC Brasilia office. The views and information provided in this document are the sole responsibi 1ty of the authors. 1/ European Community (EC) refers to the adherents to the treaties forming the European Coal and Steel Comraunity (ECSC), the European Economic Community (EEC) and the European Atomic Energy Community (Euratom), Members are Belgium, France, Denmark, the Federal ftepublic of Germany, Greece, Ireland, Italy, Luxembourg, the Neherlands and the United Kingdom. On 1 January, 1986, the EC will be enlarged to 12 Member States with the accession of Portugal and Spain. 2/ Economic Commission for Latin America and the Caribbean (ECLAC) and the Institute for Economic and Social Planning (IPEA), related to the Planning Secretary of the Presidency of the Republic of Brazil. 3/ IPEA/ECLAC. Trade Relations Between Brazil and the United States. Brasilia, 1985. 149 pp. il. I - THE EUROPEAN COHHUNITV AND THE HORLD ECONQHIC CRISIS iQtCoductign The member states oí the European Community (EC) are only recently emerging -from the worst economic slowdown they have suHered since World War II. After decreasing 0.4X in 1981, real GNP in the EC increased 0.6X in 1982, 1. 17. in 1983 and slightly more than 2"/. in 1984. (Economic growth is still considerably slower than in the United States and Japan.) The EC countries have success-ful ly tried to reduce a series o-f imbalances, principally inflation and the de-ficits in public finance and on the current account of the balance-of-payments. The labour share in value added has shown a downward trend because of productivity gains and wage moderation. However, increased profits have not resulted in employment creating investment, and there are no signs of a significant improvement in the employment situation. Stagnating employment and the slowness of industrial restructuring —resulting, among other factors, in a disadvantageous position in high technology goods— remain major structural problems which will continue to affect the external position of the EC and to be a major source of pressure for protection against foreign competition. ft series of factors have led to a gradual return of optimism. Inflation results are improving; the annual increase in consumer prices has been reduced from 11.17. in 1981 to 9.87. in 1982 and 7.57. in 1983 1/. The GNP deflator decreased from 9.87. in 1981 to 5.257. in 1984 2/. The current account deficit of the EC decreased from ill.8 billion in 1981 to Í1 billion in 1984 and is expected to attain a Í9.5 billion surplus in 1985 3/. Imbalances in government finance have been reduced by restrictive fiscal policies. In the eighties this has resulted in a decrease in the structural component of general government deficits in most EC countries in spite of a strong increase in debt interest payments as a percentage of GNP. The increase in actual deficits in many coutries can be attributed in most cases to cyclical factors (such as low tax receipts and high social security payments) 4/. In recent years the international competitiveness of Community production improved significantly. Thanks to wage moderation and productivity gains, the increase in unit labour costs has diminished significantly in the eighties. Its annual rate of increase, which until 1982 was nevertheless still considerably higher than in the United States and Japan, was similar to that of the EC's principal competitors in 1983 and 1984 (Table I.l). In these two years the strong devaluation of EC currencies against the dollar thus fully contributed to the improvement of international competitiveness. Unit labour costs in a common currency decreased 12.77. in 1981, 4.5X in 1982. 5.4% in 1983 and around 7X in 1984. (See also Table 1.2). Recent economic recovery in the EC has been sustained principally by a strong increase in world trade (some 9X in volume terras in 1984), due principally to the growth o-f U.S. imports, supported by the strength o-f the economic recovery in the United States and the high value oí the dollar (in the third quarter of 1983, Community exports to the U.S. were 20X higher than in the same period of 1982). EC export growth has nevertheless been slower than that o-f other regions. This can be explained, among other factors, by the disadvantageous geographical distribution of EC exports, principally the high share of OPEC and other developing countries —many of which have restricted imports because of decreasing export revenues and/or debt service problems— in extra-EC exports 5/. Export market growth has also been slow because of the relative importance of intra-European trade. Export growth seems to have been affected by the inability of European countries to enlarge their shares in the markets of their trading partners through shifts in supply towards articles with more dynamic international trade patterns 6/. The dependence of EC export growth on U.S. imports and certain doubts which may exist about the sustainabi1 ity of the U.S. recovery and on the value of the dollar, give a certain degree of vulnerability to e;;onofflic recovery in the EC. Other demand factors, principally private consumption and stockbui1drng have contributed to the recovery, but domestic market growth is still slow. Unemployment and stagnation in industrial production remain major structural problems in Europe. In the eighties unemployment in the EC has increased to post-war records, attaining 7.67. in 1981, 8.9-/. in 1982, 9.87. in 1983 and 10.257. in 1984 7/. Unemployment rates are particularly high in Belgium, the Netherlands and the United Kingdom. Not only the high level of unemployment, but also its persistence and its uneven distribution among different groups of the population have made bunemployment the most acute socioeconomic problem of the present decade. Youth unemployment is considerably higher than average unemployinent in all EC countries, and —considering only the largest countries— is especially high in Italy (327. in 1984), the United Kingdom (237.) and France (217.), feeding the fear of a "lost generation" 8/. There is also a markedly uneven distribution of unemployment between regions and industries. Especially in the older industrial centres, unemployment has reached record levels, affecting skilled workers in traditional industries such as textiles and shipbuilding. In most EC countries, particularly France and West Germany, the immigration of a large number of foreign workers during the boom period is now aggravating the problem (Table 1.3).
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