Government Protectionism and Regional Economic Integration: A Report

This report examines the impact of government protectionism on regional economic integration, with a specific focus on Saudi Arabia's policies. It analyzes the role of government intervention in economic growth and business activities, exploring both the benefits of protecting domestic industries and the drawbacks of trade barriers like tariffs and quotas. The report discusses the effects of protectionism on individual economies, the global economy, and the trade relations between countries like the US and Saudi Arabia. It also delves into specific examples such as excise taxes, VAT, and technical barriers implemented by Saudi Arabia, and their impact on trade and economic growth. The conclusion summarizes the advantages and disadvantages of government protectionism and its effects on the global market, emphasizing the importance of understanding these policies for economic welfare and growth.

Running head: GOVERNMENT INTERVENTION AND REGIONAL ECONOMIC
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Government Intervention and Regional Economic Integration
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ABSTRACT
This paper intends to analyse the role of government protectionism on the economic growth and
business activities of a country. This paper examines the protectionism policies of the Saudi
Arabia and the impacts of those policies on the global economy. It also emphasizes on the merits
and demerits of the government protectionism on the individual economies as well as global
economy. This paper also assesses the impacts of the protectionism on the domestic industry.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
The role of government protectionism in economic growth and business activities...................3
Conclusion.......................................................................................................................................5
References........................................................................................................................................7

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Introduction
The government of a country adopt an economic policy in order to limit the imports from
other countries of the world, it is known as government protectionism. The economic policies
that restricts the imports include import quotas, tariffs on goods imported and several other
regulations imposed by the government. This kind of economic policy is adopted by the
government to protect the domestic industry from the foreign competition. One of the largest
country of the Middle East, Saudi Arabia is the second largest oil producer of the world (Gov.sa,
2020). Though, it is considered as relatively open to international trade, the government of Saudi
Arabia also applied some protectionist measures to safeguard the domestic market of the country.
Thus, these protectionist measures impact the individual economies as well as global economy.
Discussion
The role of government protectionism in economic growth and business activities
There are several benefits and limitations of the government protectionism. On one hand,
it protects the business activities and economic growth of the country by safeguarding the import
competing sector. The import competing sector of a country is vulnerable to the foreign
competitors. In order to shield the laborers, producers and businesses of a country, protectionist
policies are imposed (Rutzen, 2015). On the other hand, there is an adverse impact of the
protectionism on the trade and results in lowering the overall trade. As the costs of the imported
goods increased due to imposition of tariffs and other barriers on the imported products. It raise
the cost of the consumers and affect the producers as well. The labourers and producers of the
export sectors are mainly suffered because of the protectionism. In addition, the government
protectionism hampers both the country that imposes the policy and on which it imposes.

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Therefore, the drawbacks of the protectionism spread across all trading partners of the
world. As it scales down the overall level of international trade, the global economy also get
affected by the government protectionism. According to some economists, the protectionism
brings negative impacts on economic welfare and economic growth. However, there exists
negative effects of the trade liberalization due to generation of inequality. Saudi Arabian
government (SAG) is a member of the World Trade Organization (WTO). Hence, it takes a wide
range of steps to be a more transparent, predictable and open market for trade (Prelipcean &
Bucătar, 2019). Some key areas of trade in Saudi Arabia also registered few regression. In June
2017, the government of Saudi Arabia implemented excise taxes on products such as cigarettes,
energy drinks and carbonated drinks. The rate of the excise taxes were 100%, 100% and 50% on
cigarettes, energy drinks and carbonated drinks respectively. In addition, another round of Value
Added Tax (VAT) of 5% also applied on these products by the SAG in January 2018.
The Saudi Arabia provided licence to the local pharmaceutical firms to produce
competing products for the country over the several years. According to the pharmaceutical firms
of the United States (US), the SAG violated the confidentiality of the trade data and intellectual
property rights of the US while licensing the local pharmaceutical firms (Kratsas & Truby,
2015). Therefore, the implementation of tariffs and other trade regulations harm the trade
relation of the country with the US. As a result, it also impacts the global trade volume and
growth. The trade relation between the US and Saudi Arabia is essential for the growth and
development of both regions as well as entire world. The economy of Saudi Arabia is completely
dependent on the oil production. The contribution of the oil revenue is significant on the GDP of
the rate of the country. Thus, the overall global growth is also influenced by the growth and
development of the Saudi Arabia. Furthermore, the US is one of the largest importer of the oil

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from the Saudi Arabia (Greenaway et al., 2016). As the trade relation between two countries
degrades, it will also impact the revenue generation from the oil industry.
Trade growth is one of the major contributor of the higher economic growth worldwide
that may hamper due to the protectionist policies of the SAG. Saudi Arabia also adopted
regulations in the area of technical standards (Linnemann & Lacroix, 2015). The technical
regulations of the country is developed by the Gulf Standards Organization (GSO) and the Saudi
Arabian Standards Organization (SASO). The technical barriers of the country related to
technical barriers to trade is notified to the WTO. These kind of technical barriers applied by the
country may restrict market access for consumer and industrial products exported from other
countries, especially the US. The government of US also implemented some technical barriers
for the Saudi Arabia in retaliation. Saudi Arabia also adopted various policies to reduce the
dependence on the oil production by safeguard the other industries of the domestic economy
through protectionism. These policies are considered as anti-globalization, which hampers the
confidence of the businesses and investors on the global economy. Therefore, the global
economy faces many challenges in terms of trade barriers and regulations (Felbermayr, Kinzius
& Yalcin, 2017). It lowers the aggregate living standard of the world and weakens the industry.
Hence, it witness slower economic growth and other economic activities due to the presence of
the protectionism in the global market.
Conclusion
Government protectionism helps to aid the import competing sector of the country by
reducing the foreign competition. However, it also hampers the export sector of the country by
increasing the cost of the producers and consumers (Evenett & Fritz, 2015). To protect the
country from the foreign threat Saudi Arabia implemented several tariffs and other barriers.

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Thus, the country implemented excise tax and VAT on the cigarettes and energy drinks. It also
imposed various technical barriers to trade in form of technical regulations and standards to
safeguard the domestic industries of the country. It hampers the trade relation with the US and
also lowers the aggregate level of world trade. However, it adversely impacts the economic
welfare and economic growth by raising trade barriers and other regulations in the global
economy.

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References
Evenett, S. J., & Fritz, J. (2015). The Tide Turns? Trade Protectionism, and Slowing Global
Growth. The 18th GTA Report.
Felbermayr, G., Kinzius, L., & Yalcin, E. (2017). Hidden protectionism: Non-tariff barriers and
implications for international trade (No. 91). ifo Forschungsberichte.
Gov.sa (2020). My.gov.sa. https://www.my.gov.sa/wps/portal/snp/main/
Greenaway, D., Hine, R. C., O'Brien, A. P., & Thornton, R. J. (Eds.). (2016). Global
protectionism. Springer.
Kratsas, G., & Truby, J. (2015). Regulating sovereign wealth funds to avoid investment
protectionism. Journal of Financial Regulation, 1(1), 95-134.
Linnemann, H., & Lacroix, S. (2015). Politics and Business in Saudi Arabia: Characteristics of
an Interplay.
Prelipcean, G., & Bucătar, D. G. (2019). Rising Protectionism within the Global
Economy. Ovidius University Annals, Economic Sciences Series, 19(1), 290-298.
Rutzen, D. (2015). Aid barriers and the rise of philanthropic protectionism. Int'l J. Not-for-Profit
L., 17, 5.