Studies of the European Community and world protectionism that focus on its tariffs and those it induces elsewhere tend to neglect the effects of its decision-making procedures. In Discussion Paper No. 897, Programme Director L Alan Winters reviews the theoretical literature on the formation of regional blocs and examines possible biases arising from committee decision-taking and the Commission's relationship with national governments. In simple models of regional integration, tariffs fall as bloc size increases, while the trade-off between the immediate benefits of defection and the eventual costs of a trade war depend on the discount rate. While the period before retaliation in individual tariff disputes is too short for defection to yield significant gains, it may bring important benefits if periods correspond to GATT rounds and policy weapons include the discretionary application of antidumping legislation and health and technical regulations.

Winters also considers the effects of integration and decision processes on protectionism. While acceptance of a proposed trade policy requires a qualified majority of Council votes, its rejection requires only a minority of votes to maintain the status quo ante. The Commission must therefore broker compromises among national governments, which causes a drift towards generalized protection and strengthens lobbies with influence in Brussels and several national capitals. The best-known failure of the committee approach is the `restaurant bill' problem that afflicts annual price-fixing in agriculture: while the costs of high prices are proportional to member countries', their benefits are proportional to production, so governments seek to raise the prices of all commodities in which their production shares exceed their GDP shares. Liberal member countries cannot credibly both oppose protectionism and safeguard their shares of the rents arising if such opposition proves unsuccessful. The European Commission's adoption of a protectionist position to secure control of trade policy has headed off national protectionist pressures but also spread such sentiments more widely and provided them with a firmer legal foundation.

The EC and World Protectionism: Dimensions of the Political Economy
L Alan Winters

Discussion Paper No. 897, February 1994 (IT)