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Korea or Japan. However, and considering the depth that this research aims for, Singer’s warnings towards the toughness of replicating this research must be kept under consideration. Based on these goals, the following literature review covers what has been written in these matters, in order to make sure that this research makes a contribution to the existing literature.
3. Literature review
This research’s literature review can be divided according to the focus of the different kinds of literature that are necessary to bridge Taiwan’s selective protectionism (or selective liberalization) with its sources. First, protectionism (the dependent variable) as a phenomenon needs to be analysed in its empirical application to similar cases, studying the institutional-level analyses that have been carried out before. Secondly, a review will be conducted on Taiwan’s trade liberalization process, including articles dealing with agricultural liberalization that refer to the topic under research. A study on the particular topic of Taiwan’s meat market protectionism is not available as of now neither in English nor in Spanish; while there are some articles on agricultural protectionism (mostly regarding the rice market), and topics such as food security, self-sufficiency and domestic agricultural regulations, a comprehensive study and sectoral analysis of the issue is not available as of today. The researcher’s inability to read mandarin impedes the possibilities of this research to look into material written in this language regarding the topic of research, and putting a handicap into the potential of the current work.
3.1 Protectionism
Literature on protectionism dates back to Adam Smith’s Wealth of Nations, where the Scottish economist described the concept of absolute advantage, which would lead market forces to efficiently allocate resources according to production capabilities and consumption needs. From his free trade premise, any restriction to the market would counter the efficiency of the economy as a whole, therefore limiting the ability of the economy to produce in an optimum frontier. From him onwards, there has been an agreed consensus among economists regarding the benefits of free trade in terms of efficiency. However, this consensus has not been absolute, especially when considering it from a political economy perspective, and theories have appeared to defend protectionism either in its absolute sense, or in particular settings.
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“Protectionism hurts some groups, but benefits others, so some private actors have a vested interest in securing or retaining trade barriers” (Lukauskas, 2013, p. 223). The political selection of winners (or survivors) of the market system can be explained among the lines of different rationales. Arvid Lukauskas divides them in two categories (domestic and international rationales), which can at the same time have an economic basis, or a non-economic basis. These are the following:
a. Domestic rationales:
I. Infant industry – “If government officials believe a domestic industry lies within the country’s long run comparative advantage, they may choose to protect it temporarily to give domestic firms time to catch up to more competitive foreign firms” (Lukauskas, 2013, pp. 224-225).
II. National defence or security – This rationale establishes that certain industries are critical towards the nation’s survival, or its security (food security in the current case), therefore they need to be protected.
III. Government revenue – Government may levy taxes or import/export tariffs in order to increase its revenue, and allow it increased spending power.
IV. Income redistribution – Since trade barriers affect the distribution of income, protectionism could be established in order to favour disadvantaged groups, thereby promoting further equality in income distribution.
V. Protection of jobs – Import competing sectors, when faced with free trade, will have to decrease their costs to remain competitive, therefore affecting their ability to hire new workers, and probably forcing them to fire part of the existing workforce.
b. International rationales:
I. Terms of trade - Applies when a country is such a large consumer or supplier of a specific good that it has the ability to alter world prices through the imposition of a tariff, improving the terms of trade.
II. Balance of payments – Protectionist measures are established in order to improve the country’s finances, recovering its balance of payments. By suppressing imports, and boosting local production, government revenues increase alongside the economic activity.
III. Strategic trade – The government targets priority sectors for their promotion, erecting barriers, or subsidizing them in order to increase their competitiveness and their position in world markets. Paul Krugman et al
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discussed this theory in a seminar work titled Strategic Trade Policy and the New International Economics (Krugman, 1986).
To these arguments, in recent years the “fair trade” argument has been added. “Much economic analysis shows that in the eighties "fair trade" mechanisms turned increasingly into protectionist instruments used unfairly against foreign competition” (Bhagwati, 2015). As Baghwati proves in his publications, the argument of fair trade has repeatedly been used as a rationale towards protectionism in the 21st century. These rationales will be tested in the dissertation to establish a basis for Taiwan’s behaviour in the meat market.
Protectionism is a broad and theoretical topic, but there are several empirical studies that have been carried out under this umbrella. Within it, we find studies of protectionism in agriculture, and the use of NTBs, which are the topics relevant to this research. In agricultural protection, Kym Anderson and Yujiro Hayami wrote a vital book in 1986 (Anderson & Hayami, 1986). In it, they focus on the Northeast Asian economies of Japan, South Korea and Taiwan, in order to analyse the price distortion that protectionist measures impose on trade flows, and its causes. While theirs focus is mostly on subsidies, and less on barriers to trade (although they include NTBs on their calculations), the rationale of protecting the domestic market is applicable to the current research, and the initial thirst for causation is imperative when it comes to understanding the problem, as Anderson and Hayami did. They start with an analysis of the economic process that leads to protection, concluding that economic growth and industrialisation diminishes the relevance of agriculture relative to GDP and employment. At the same time, the budget destined to food by consumers gets proportionally smaller, diffusing their interests, while revenues from farmers are at stake, increasing their need to form pressure groups. Under this rationale, they analyse the political economy behind protectionism, and conclude that “traditional food exporters will need to make a much more strenuous commercial diplomatic effort than has hitherto been the case” (Anderson & Hayami, 1986, p. 6) in order to avoid falling into the trap of protectionist pressures. Their book is fundamental as it brings international players into the scene, even if its main focus is on the domestic sources of foreign economic policy.
Acknowledging that there are at least two levels of analysis required in a robust research is a starting point for a multi-level sectoral study.
The most fundamental contribution that Kym Anderson has brought throughout his dedication to this topic is the quantitative assessment work carried out to measure the worldwide trends of protection. Alongside the World Bank and other scholars, he has made time series up until 2011 in order to measure the nominal rate of assistance (NRA) and relative rate of assistance (RRA) that the most important agricultural sectors (within the most
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important agricultural-trading countries) have received in order to standardize a measurement for agricultural protection. Besides testing his work’s hypotheses, these analyses serve as a starting point for establishing that there is a high level of protection in the Taiwanese meat markets, as the data for the past decades show.
Agricultural protectionism has been researched widely by Kym Anderson in his various works such as The Political Economy of Agricultural Price Distortions (2010), Distortions to Agricultural Incentives: 1955-2007 (2009) or “The Intersection of Trade Policy, Price Volatility, and Food Security” (2014) among others. His works present a robust methodology which mixes econometric analysis with historical narrative in order to decipher the origins and interests behind agricultural protectionism, arriving at results through empirical analysis.
These have allowed him to theorize on the matter being the most distinguished scholar on the field of agricultural protectionism. He has done previous research on Taiwan’s agricultural protection (and Taiwan is included in the time series he developed alongside Nelgen –mentioned above) concluding that there is a relatively high level of protection in the Taiwanese market, at least up to 2011, on the poultry and bovine meat markets. He does cover in his research several rationales for protectionism, but does not go into the field of international relations or international political economy; he’s strongly focused on the domestic sources of pressure towards protection, and the economic theories behind it.
Agricultural protection has also been analysed from an international perspective (bilateral and multilateral). Swinnen et al (Swinnen, Olper, & Thijs, 2012) have developed a quantitative analysis that aimed to measure ex post the results of policies that the WTO has implemented regarding food trade. Their analysis generated quantitative data which is an interesting backup for the study of qualitative normative influence flowing from the WTO.
Furthermore they establish a framework of influence flowing from multilateral organizations into domestic policy choices. In a more qualitative vein, studies have analysed the concepts of food security and multifunctionality as protectionist measures legitimized by the proposals of multilateral organizations. Anderson again, in 2000, wrote an article titled “Agriculture’s Multifunctionality and the WTO” (Anderson, 2000) where he argues that domestic policy in pursuit of positive spillovers from multifunctionality do not require trade-offs towards agricultural protection as conceived by the WTO. In a similar approach but under different conclusions, Potter and Burney (2002) have studied disguised protectionism legitimized by the concept of multifunctionality towards environmental concerns. In the environmental contribution of agriculture they conclude that biodiversity and landscape values are highly positive externalities that provide a strong rationale for the protection of the sector. Since multifunctionality is a complex concept, involving several issue areas, the discussion around
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it is very much open, as Potter and Tilzey acknowledge (2007), where supporters and opposition exist towards the concept as an efficient public policy.
Food security, on the other hand, is a concept that appears to be easier to define and grasp, as it is one of the indicators within the concept of multifunctionality. The concept of
“food security” can be looked at from a self-sufficiency perspective, a hunger perspective, and a sanitary perspective. Either one is workable in its own right. In the case of northeast Asian countries of Japan, South Korea, or Taiwan, hunger is not a major policy issue, thus the focus is on self-sufficiency and food safety. Beghin, Bureau and Park (2003) take the analysis of the concept in South Korea by studying the impacts of a food security policy;
while not questioning the core, they agree that it is a price distorting mechanism, and they
“show that FS [food security] via production targets and reliance on imports would be more palatable to consumers and trade partners, while preserving income transfer to the farm sector” (Beghin, Bureau, & Park, 2003, p. 618). Just as with multifunctionality, there are studies supporting the legitimate objective of food security (Gonzalez, 2004) for environmental (Turral, Burke, & Faures, 2011) and nutritional (Godfray, Beddington, Crute, Haddad, Lawrence, & Toulmin, 2010) purposes mostly, and studies that consider the concept to be a perfect excuse for disguised protectionism (Kaufman & Heri, 2007) (Runge, 1990) (Kim, 2012).
While protectionism will establish the rationale for Taiwan’s behaviour, the analysis should also consider the form of the protectionism established, and literature on NTBs will be taken into consideration. As a basis for it, the United Nations Conference on Trade and Development (UNCTAD), through the Multi-Agency Support Team (MAST), published in February 2012 the latest “Classification on Non-Tariff Measures” in order for analysts to be able to quantify and measure this kind of barriers to trade according to a tree/branches/leafs system, similar to the HS harmonized codes. This research will use the same basis as UNCTAD.
NTBs are the protectionist tools of the 21st century. Baldwin (1970) wrote a comprehensive book on the phenomena in 1970, and its definitions are still valid. He writes in a context of disconformity with the Kennedy Round Agreement concluded in 1967, pointing out that in spite of what was achieved, NTBs continue to inhibit trade, and therefore welfare creation. In his argument he presents solutions for these distortions, which were later taken up for example in the WTOs boxes towards agricultural measures. As is the case with agricultural protection in general, the usefulness of NTBs has detractors and promoters.
Beghin et al (Beghin, Disdier, Marette, & Van Tongeren, 2011) prove in their research, contrary to Baldwin’s assumptions, that the optimum level of non-tariff measures in
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agricultural trade is not zero, since the application of certain food safety standards can be socially preferable to an open market. Several other studies (Saini, 2009) (Mikic, 2010) (Richards, Molina, & Hussein, 2009), on the other hand, have gone a great length to measure the results of NTBs, bringing monetary results of welfare loss that are worth considering. Thus the legitimacy of NTBs is not judged by the literature, since it depends on the policy goals that want to be achieved.
Two key concepts that will be defined and operationalized for the analysis of the meat markets are those of selective protectionism and selective liberalization. These are concepts that the literature on political economy has used widely, without striving for a theoretical framework of the concepts, or an in-depth definition. Firstly, the concept of selective liberalization has been applied to describe the process of liberalization of the NIEs of East Asia, such as South Korea. The application of the concept is based on a sectoral strategy of liberalization towards economic growth applied by some countries in order to foster national winners, and protect infant industries until maturity, while allowing a liberalized trade in inputs that may lower the costs of production. Dornbusch highlights the fact that “with the help of a selective liberal import strategy, Korea has been able to develop a highly competitive manufacturing sector” (Dornbush, 1992, p. 78). Similarly, and from the perspective of the developing world, Shafeaddin (2005), argues for a selective sectoral liberalization process only when a certain industry reaches a level of maturity, in order to protect the growth of the selected industry. Once again, the concept is applied on a sectoral basis.
The success stories invoked by Dornbusch and Shafeaddin, find a stronger categorization in Lall et al (Lall, Navaretti, Teitel, Wignaraja, & Ganeshan, 2010), where the authors categorize the economic sectors according to liberalization potential in four levels, with a first group having well-developed capabilities which are already competitive internationally; a second group which has a “short distance from the technological frontier”
and are near a stage of maturity; a third group which are potentially viable but require time and protection; and a fourth group of sectors which are not economically viable and should be allowed to die. These for groups aim to develop a potential scale for a gradualist process of selective liberalization.
Smith (1999) brings the concept under an interesting definition and he establishes that
“this term suggests that national executives indeed prefer economic liberalization, but that they also wish to control the scope and timing of the liberalization process” (Smith M. , 1999).
This definition, while hardly workable towards research, widens the object of analysis beyond sectoral liberalization, and therefore opens up the door for a clear operationalization
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of selective liberalization in different “scopes” and “timings” depending on the case studies under analysis. Applied to his own research, Smith looks at domestic pressure groups as well as regional institutions in order to understand the pursuit of selective liberalization within the European Union.
These authors have some points in common in their usage of selective liberalization as a strategy:
- Selective liberalization is conducive to economic growth when conducted properly (as was the case of the NIEs), while a mechanism immediate strict liberalization does not necessarily derive in industrial development for the developing world. It has a positive effect towards growth and the efficient allocation of resources.
- Selective liberalization is part of a controlled process towards strict liberalization of trade.
- A sectoral approach is the most common use of the concept, but it is not the only one, and no theoretical framework has been generated to operationalize it.
The concept of selective protectionism has also been used with different connotations.
While it may be thought to be an antonym of selective liberalization, or at least a process that moves in parallel, the literature has made very different use of both concepts, and applied it to different empirical studies of trade policy. Hirashima (2004) provides a good starting point, as he selects the concept to be used sectorally to describe the trade policies of Japan and Switzerland respectively. In this case, he talks about sectoral protection of uncompetitive domestic sectors in developed countries, and the focus is on the domestic policy procedures that lead to the implementation of these protective mechanisms, and the pressure groups that emerge from within. Similarly, Kriesi (1999) and Mach and Bonoli (2000), formulate the same principle to explain protective policies in Switzerland’s vulnerable domestic sectors.
Two main differences observable at first sight are the application of the concept to the developed world, not to the developing countries, and the sectoral characteristic of the concept. Menzel (2006) had already applied the selective protectionist concept to an analysis of the successful industrialization process of four countries (Switzerland, Denmark, Sweden and Canada). He understands the industrialization process of these countries as a cause of the following factors: A mix of technology transfer and endogenous innovation, trade policies that coupled greater economic integration through free trade with selective protectionism measures for some domestic sectors, a niche strategy based on low wages and a marketing strategy oriented towards the quality export of goods, and trade
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liberalization alongside increased state intervention. While the concept is clear, a workable definition is not present in this piece of research.
Another scholar who used the concept of selective protectionism is Chorev (2007), and applied it to the United States. He applies the concept of selective protectionism to a particular historical period of America’s trade policy. While he sees the executive branch of government as internationalist, the congress of the United States is much more protectionist, and it applies selective protection according to the need of constituencies. Even when the executive branch had the ability to generate trade policy, “alternative protectionist measures, such as the imposition of import quotas, remained under the jurisdiction of Congress” (2007, p. 59). Finally, Keet (1999, pág. 5), understands the concept as “protective strategies [utilized by industrialized countries] in support of their economically vulnerable domestic industries or economic sectors”. With the abovementioned articles and works, the literature has understood the concept of selective protection under the following parameters:
- A mechanism of protection applied by developed countries to shield their domestically vulnerable industries.
- It is a negative phenomenon in terms of resource allocation and productivity.
- The word “selective” applies to sectors, and has not been used for a wider or smaller scope in the literature.
- It is part of a toolkit of policies used towards the achievement of industrialization, yet
- It is part of a toolkit of policies used towards the achievement of industrialization, yet