Abstract

Geopolitical rivalries and shortcomings in supply chains have forced countries to abandon global free trade for protectionist economics that clash directly with the World Trade Organisation’s non-discrimination policies. Through case studies that investigate the consequences of both under-protectionism and over-protectionism, this paper explores the legal limits of state interventions. This paper concludes that there is a workable legal balance that can only be achieved when states use protectionist measures as temporary WTO exemptions based on evidence rather than using national security exceptions to cover their business operations.

Introduction

In an era defined by geopolitical rivalries and systemic supply chain disruptions, the commitment to unrestricted global free trade has increasingly given way to a paradigm of “defensive economic protectionism”. The shift toward protectionism started in the wake of the 2008 financial crisis where many developed economies started implementing populist policies and measures encouraging local sourcing of supplies to protect national sovereignty in order to build economic robustness. However, the resurgence in state-led intervention directly collides with the core principles of the international trading system, particularly the World Trade Organisation’s (WTO) non-discrimination rules such as the most favoured nation (MFN) principle and national treatment.

In this paper, we will examine the complex legal and economic lines of demarcation involved in this clash of systems, paying particular attention to how far it is possible for sovereign states to navigate their way through a legal “middle ground”. The conclusion we draw from this paper is that although there are some legal loopholes available within the WTO framework to accommodate certain security and public policy considerations, overextension of such self-judging exceptions to protect commercial industries becomes an overreach of law.

Hypothesis: While non-discriminatory free trade ensures efficiency at the international level, contemporary problems in supply chains have left countries with no choice but to protect themselves through protectionist measures. Nonetheless, a “middle ground” legal approach is viable only if the measures taken do not go beyond the time-bound and evidence-based exceptions allowed by the WTO.

Literary Context

To understand modern defensive protectionism, we first have to understand the literary context of the foundation of non-discriminatory policies of the post-WWII international economic order.

The neoliberal institutionalist view sees the principles of non-discrimination of the WTO as the key mechanisms ensuring global economic efficiency. They are focused on the equality of all nations and the WTO’s policies stop governments from enforcing populist policies, maximising wealth at the expense of unfair advantages and helping countries in settling disputes peacefully according to the agreed-upon rules. According to neoliberal institutionalist scholars, the WTO policies – in particular, MFN and national treatment principles – were specifically designed to prevent the catastrophic “beggar-thy-neighbor” protectionist spirals of the 1930s. Against the classical paradigm, the attempt to implement discriminatory policies is heavily criticised, with the literature historically proving that the results of the discriminatory policies include deadweight economic loss, retaliatory trade barriers and market distortions.

On the other hand, the pragmatic scholar’s approach is built on the assumption that the international trade system should be capable of evolving according to the economic circumstances of the time. According to pragmatic scholars, the WTO policies do not prohibit sovereign nations to defend themselves against the threat of systemic crisis. The pragmatic scholars point out that the General Agreement on Tariffs and Trade (GATT) Article XIX and WTO safeguards agreements allow countries to have policy space and flexibility. They believe in order to secure vulnerable supply chains and protect strategic industries, state intervention would be necessary. In this case, the refusal to make adjustments to the policy leads to political pressure and in the end drives states to reject multilateral agreements completely.

The realistic economic approach is focused on the national security implications of trade policies. In the multipolar and strained diplomatic economic environment of today, the economic mutual dependence is seen as a weakness. Realistic economic scholars do not perceive defensive policies only as the market distortions but rather as the necessity for sovereign nations to preserve industrial capacity and technological superiority.

The core conflict in modern trade literature, thus, lies in determining the statutory limits of this “middle ground”, precisely identifying how states can exercise economic self-government without breaking down the rules preventing systemic protectionism.

Method and Frameworks

METHOD

The aim of this study is to examine whether there is a degree of protectionism that can be used between modern nations without causing harm. The extent to which modern nations can place protectionist policies to secure vital markets without breaking the rules of the World Trade Organisation is presented in this paper through the use of secondary data, including papers and articles from the WTO and other credible organisations. The quantitative data used illustrates the exports, the imports and their value between countries, while the qualitative data portrays the negative effects of breaking trade rules on nations and their industries. It should be noted that although these articles and academic papers are from reputable organisations, there is little evidence as to whether the information has been peer reviewed. Similarly, some sources have only one author.

INSTITUTIONAL AND THEORETICAL FRAMEWORK

Protectionism affects all of the countries involved in trade, even when one of those countries uses protectionist actions such as tariffs. Protectionism is where the country taxes the imports from outside the country in order to benefit the domestic firms. This may be done to help firms have less competition so that they can increase their profit; however, other countries can retaliate with their own protectionist actions which can lead to trade wars. Many organisations have had an impact on protectionism, including the World Trade Organisation and its Trade Negotiations Committee (TNC), as well as the World Customs Organisation (WCO).

Case Study 1: Under-Protectionism

In a world of increasing technology and globalisation, there needs to be stern boundaries put in place by individual nations to protect their economic sovereignty. Too little economic protectionism can be harmful because it reduces a country’s ability to protect its own economy from foreign competition. When tariffs and other protections are lowered too much, domestic industries may struggle to compete with foreign producers. This can reduce domestic production and make countries more dependent on foreign goods. Governments have less control over their own markets and may have fewer options when responding to economic problems. It can also create pressure on domestic businesses to lower costs which can affect wages, employment and working conditions. There are serious dangers that reside when countries have too little economic protectionism, and tariffs are one example.

A noticeable change in the lack of economic protectionism in the field of tariffs occurred right after World War II. The post-war period led to a boom in foreign trade and free markets. From 1947 onward, the General Agreement on Tariffs and Trade (GATT) encouraged countries to reduce tariffs, which led to much lower trade barriers across the following decades. A good example of how this affected certain industries was the textile business: lower trade barriers and more foreign competition put pressure on British textile companies, with factory closures and reduced employment leading to job losses for many textile workers – from 500,000 to 250,000.

Similarly, in 1967, the Kennedy Round was signed, involving 62 countries agreeing to lower tariffs on goods traded between them. Countries like Brazil, India and Pakistan were massively hurt by this as they relied on industries that operated within their own countries. Other countries being able to expand resulted in massive job losses. In 1988, the Uruguay Round was signed, including 123 countries. Although the Kennedy Round represented a major step toward global free trade, its benefits were distributed unevenly. Industrialised countries generally gained greater opportunities from reductions in manufactured goods tariffs, while developing countries such as India and Brazil continued to face significant barriers to agricultural and labour-intensive exports.

In 1995, the World Trade Organisation (WTO) was formed, immediately requiring countries to lower tariffs. With lower tariffs, imported goods became more competitive compared with domestically produced goods; however, the WTO also allowed members the right to use tariffs in certain circumstances, such as anti-dumping measures or safeguards for their country, maintaining levels of economic protectionism. 

I. MEXICO

Mexico’s experience with trade liberalisation shows how reduced economic protection affected farmers and other workers. A major turning point came in 1994, when the North American Free Trade Agreement (NAFTA) took effect between Mexico, the United States and Canada. The agreement gradually removed many tariffs and other trade barriers between the three countries. Supporters expected NAFTA to increase trade, investment and economic growth in Mexico, and while the agreement did create major opportunities for Mexican exports, it also exposed certain Mexican industries to much stronger competition, especially agriculture. 

Corn has been an important crop in Mexico for thousands of years and is closely connected to the country’s agricultural economy. Before NAFTA, Mexico had stronger protections for some agricultural products. After the agreement began, these protections were gradually reduced. At the same time, American farmers were able to produce corn at a lower cost, partly because of the large-scale farming methods and government support available in the US. As more inexpensive American corn entered Mexico, Mexican farmers had difficulty competing with the lower prices. This competition was especially difficult for small farmers who depended on corn production for their income. Many rural communities had fewer opportunities to earn money from agriculture as imported corn became more common. Some farmers stopped growing corn commercially, while others looked for work outside agriculture. Migration from rural areas increased as people searched for better economic opportunities. Some Mexicans moved to cities, while others relocated to the United States to find employment.

The effects were not the same everywhere in Mexico. Large agricultural businesses and producers of crops such as fruits and vegetables were able to benefit from increased access to American and Canadian markets. Mexico became a major exporter of products such as tomatoes, avocados, berries and farming goods. However, smaller corn farmers were less able to take advantage of these new export opportunities. This created a divide between parts of Mexico’s farming community that benefitted from international trade and those that struggled because of increased competition.

NAFTA also affected Mexican manufacturing. Foreign companies invested in Mexico and established factories that produced goods for export. This created jobs and helped Mexico become an important part of North American manufacturing. However, some Mexican businesses that had previously depended on protection from imports struggled when they had to compete with larger international companies.

Mexico’s experience demonstrates the difficulties that can occur when economic protection is reduced too quickly for industries that are not prepared for international competition. Although NAFTA brought investment and increased exports, the benefits were not shared equally. Mexican farmers, particularly small corn producers, faced serious challenges from cheaper imports. The events surrounding NAFTA show that opening an economy to international trade can create opportunities while also placing vulnerable industries and workers under significant pressure.

II. GHANA

Ghana also experienced difficulties when local industries faced increased competition from imported goods. During the 1980s and 1990s, Ghana made major economic changes designed to encourage international trade and investment. These reforms included reducing restrictions on imports and opening more of the economy to foreign competition. While the changes helped Ghana become more connected to the global economy, they also created serious problems for some local producers.

For example, Ghanaian poultry farmers had traditionally supplied chicken to consumers in the country. However, as import restrictions were reduced, larger amounts of inexpensive frozen chicken began entering Ghana. Much of this poultry came from Europe, where farmers could produce chicken at lower costs because of large-scale production and agricultural support. Ghanaian farmers had difficulty matching the prices of these imported products and consumers often preferred the cheaper imported chicken as it was more affordable. As imports gained a larger share of the market, local chicken farmers struggled to sell enough of their products. Some farms reduced their production, while others left the industry completely.

Businesses connected to poultry farming, including feed suppliers and workers, were also affected. Ghana imported a wide range of farming products, which made it difficult for local companies to expand. Ghanaian businesses often had higher production costs because they had less access to technology, financing transportation and large-scale production. When these companies had to compete with cheaper foreign products, some struggled to survive which led to job loss. The problem led to debates within Ghana about whether the country needed stronger protection for local industries. Farmers and business owners argued that the government should limit certain imports or increase tariffs so that Ghanaian producers would have more opportunities to compete. In 2013, Ghana introduced the National Poultry Development Policy, which aimed to strengthen the domestic poultry industry and reduce some of the challenges facing local producers. The government also considered additional measures to encourage consumers and institutions to purchase locally produced poultry.

Ghana’s situation shows why economic protection is complicated. Higher tariffs can help local businesses compete, but they can also increase prices for consumers. Ghana needed to balance the goal of protecting local producers with the need to keep food affordable. The country’s experience demonstrates that removing protection can hurt developing industries when foreign competitors have major cost advantages. Overall, Ghana’s poultry industry provides a strong example of how increased imports affected a developing country.

Case Study 2: Over-Protectionism

In recent years, we have started to see the trend of more and more countries actively choosing to implement protectionary measures. This is not new as throughout history we have seen many countries attempt to manage and balance their national industries and trade with other countries. Developing countries are the ones that have struggled the most with these due to import-substitution industrialisation. This is, in very simple words, when a country tries to develop a national industry in a certain sector of the economy by replacing most, if not all, of the exportations of that product so that the national industry does not have to compete with any foreign company. This measure has proven to be largely ineffective to develop and grow a country’s economy at large in comparison to having a more open economy; for example, in the 1950s-70s, where Asian countries with more open economies focused on trade performed significantly better than Latin American economies with many protective measures.

One of the first problems that appears with excessive protectionism is the lack of competition. Competition is incredibly important for an economy because it forces businesses to innovate and remain as efficient as possible. The introduction of tariffs and other protective measures reduces competition as the companies only need to deal with other national competitors rather than international companies that may try to get into that market. Cherif and Hasanov (2024) argue that export competition provides firms with incentives for productivity gains and innovation, while prolonged import-substitution policies often create inefficient firms dependent on continued state protection. Recent International Monetary Fund (IMF) evidence also finds that higher tariff protection is associated with increased market power and weaker competitive pressure. Research conducted by Faris, Jafarov and Rawat (2026) suggests that higher tariff protection is associated with greater market power within Central Asian and Middle Eastern nations. This, as they associate in their study, is probably a cause for higher markups and lower firm-level productivity growth. The main problem is not giving temporary relief to a certain industry in a developing country; it is allowing for protectionism to replace all the competition the national industry could face. 

Another important problem that appears is the increase in prices for both consumers and businesses. Tariffs directly increase the cost of imported goods, and companies can transfer these additional costs to consumers through higher prices. Research conducted by Amiti, Redding and Weinstein (2019) on the 2018 US trade war found that tariffs were almost completely passed through into domestic prices of imported goods, with the economic cost ultimately falling on US consumers and reducing real income. More recent research from the Federal Reserve also found that the US tariffs implemented in 2018 and 2019 caused statistically significant increases in consumer goods prices, with the effects being passed through fully within approximately two months (Minton & Somale, 2025). However, consumers are not the only ones affected. Tariffs on intermediate goods such as steel, aluminium or other materials can increase production costs for domestic companies that depend on these imports. In 2018, around 60% of manufacturers and 70% of retailers surveyed by the Dallas Federal Reserve reported increased input costs related to tariffs. Some businesses also reported lower profit margins because they could not completely transfer these costs to consumers. The main problem is not accepting some increase in prices to temporarily protect an important domestic industry; it is allowing excessive protectionism to increase costs across the economy to a point where consumers and other domestic industries bear greater costs than the protected industry receives in benefits.

Finally, a major problem that appears with excessive protectionism is retaliation from other countries. Retaliation happens when a country responds to another country’s tariffs by introducing tariffs of its own. This can become a serious problem because the industries affected by these new tariffs may have nothing to do with the industries that the original country was trying to protect. If countries continue responding to each other with more tariffs, this can eventually develop into a trade war where both countries face increasing barriers to international trade. Research conducted by Fajgelbaum, Goldberg, Kennedy and Khandelwal (2020) on the 2018 US trade war found that retaliatory tariffs contributed to significant reductions in American exports and negatively affected workers in areas exposed to the targeted products. Research by Carter and Steinbach (2020) also found that retaliatory tariffs had a particularly large impact on American agriculture. They estimated that losses in trade with retaliating countries were more than $14.4 billion greater than the gains made in other markets. The main problem is not a country using tariffs when they are necessary to protect an important domestic industry, it is using protectionism excessively to the point where other countries retaliate and industries that were not originally involved end up suffering the consequences. 

Below, are two case studies which serve as an example of the damage over-protectionism can cause.

I. INDIA

India, after becoming an independent country in 1947, inherited a not very advanced or industrialised economy from its days as a British colony. The government of India at the time understandably wanted to establish a strong national industry. India wanted to protect newly developing domestic industries from established foreign competitors so that these industries could grow and eventually become competitive. This led directly to the implementation of import-substitution industrialisation – instead of importing products they wanted to produce them domestically. To achieve this goal, India created an extensive system of tariffs and import restrictions designed to limit foreign competition and encourage consumers and businesses to purchase domestically produced goods. This system of tariffs eventually expanded to essentially every large sector of the economy instead of being a targeted protection of a specific industry for a valid reason. 

The three main mechanisms the Indian government established to protect their industries were: high tariffs on imported products with the purpose of making foreign goods and services more expensive in comparison to local Indian alternatives, which made it much harder for foreign companies to enter the market; import licensing, which did not allow for certain products to be imported if the government did not give the business a license or permission to do so; and quotas and quantitative restrictions on foreign products, which artificially limited the supply of foreign products on the Indian economy. 

These policies were excessive because they were not a localised protection of a vulnerable industry that lasted a couple of years, but were instead broad measures that affected the most relevant sectors of India’s economy and lasted for decades after India’s independence. The effects of these policies were that businesses quickly understood that they had almost no competitive pressure from foreign business so they had lower incentives to innovate, increase efficiency or lower prices. Research conducted by Topalova and Khandelwal (2011) helps show the effect that this lack of competition had on Indian businesses. When India eventually started reducing its tariffs, they found that the increase in foreign competition contributed to higher productivity among Indian firms. This suggests that decades of protection had reduced some of the pressure that normally forces businesses to become more efficient. Once foreign companies had an easier time entering the market, Indian businesses had a much bigger reason to improve in order to remain competitive.

Another problem was that these restrictions made many foreign products more expensive or harder to obtain. This affected consumers but also Indian businesses that relied on imported machinery, materials and components. Goldberg, Khandelwal, Pavcnik and Topalova (2010) found that after India reduced its trade barriers, Indian businesses gained access to many new varieties of imported inputs. They estimated that lower tariffs on these inputs were responsible for around 31% of the new products introduced by Indian firms. This shows how excessive protectionism can become counterproductive, as restrictions created to help national businesses can also increase their costs and limit what they can use to produce their own products.

The biggest change came in 1991, when India faced a serious economic crisis and began reducing many of the tariffs and import restrictions that had existed for decades. This exposed Indian businesses to more foreign competition while also giving them easier access to imported products and materials. The improvements in productivity that followed these reforms help demonstrate the problems created by the previous system. This does not mean that India’s original decision to protect its developing industries was necessarily wrong; the problem was allowing that protection to become extremely broad and last for decades, eventually reducing competition and creating costs for the same economy it was supposed to protect.

II. US-CHINA

Another case study that shows the dangers of excessive protectionism is the trade war between the United States and China that started in 2018. The United States had legitimate concerns about some of China’s trade practices, especially regarding technology transfers and intellectual property. In response to these concerns, the US government introduced a 25% tariff on around $50 billion worth of Chinese imports in 2018, with the intention of protecting American interests and pressuring China to change some of its practices. China did not simply accept these tariffs and instead responded by introducing tariffs of its own on American products. This started a cycle where the United States introduced additional tariffs in response to China, and China continued responding with more retaliatory tariffs. By the end of 2019, the United States had imposed tariffs on around $350 billion worth of Chinese imports while China had retaliated against around $100 billion worth of American exports. The biggest problem with this retaliation was that it affected American industries that were not necessarily the industries the original tariffs were trying to protect.

Agriculture was one of the clearest examples, as American farmers depended heavily on exporting products such as soybeans and meat to foreign markets. Research conducted by Carter and Steinbach (2020) found that retaliatory tariffs caused a significant decline in American agricultural and food exports. They estimated that losses in trade with countries that retaliated were more than $14.4 billion greater than the gains the United States made in other markets, with products such as soybeans and meat being particularly affected. This shows how protectionism can end up hurting national industries instead of protecting them, as businesses that had little to do with the original problem can become targets of retaliation. This does not mean that the United States was necessarily wrong to respond to concerns about Chinese trade practices. The problem was allowing the situation to develop into a trade war where both countries continued introducing new barriers in response to each other. Research conducted by Fajgelbaum, Goldberg, Kennedy and Khandelwal (2020) found that the tariffs and retaliatory tariffs caused large reductions in both American imports and exports. 

The US-China trade war therefore shows that even when protectionist policies have a valid original purpose, excessive use of them can provoke retaliation that spreads the costs to completely different parts of the national economy. From these case studies, we can conclude that protectionism, despite being useful in moderation, can cause great harm to an economy if used excessively. The goal governments all around the world should try to reach is to find a proper balance between completely open markets and protection.

Case Study 3: The Middle Ground

A good case to study the middle ground between free trade and protectionism is the European Union’s protection of its steel industry. Steel is an important product for many parts of the European economy. It is used in construction, transport, energy, machines, infrastructure and many other industrial activities. Because of this, steel is also linked to the industrial capacity of the European Union. If the EU loses too much steel production, it could become more dependent on imports from other countries. However, protecting the steel industry is not simple. The European Union is a member of the World Trade Organisation, so it has to respect international trade rules. The EU cannot simply stop foreign steel from entering its market whenever European companies face competition. The EU steel case is therefore useful because it shows how a government can try to protect an important industry while still allowing international trade to continue.

The problem became particularly relevant in 2018, when the European Commission was concerned about major changes in the international steel market. One of the main problems was global steel overcapacity, meaning that steel production capacity around the world was higher than the level of demand. At the same time, several countries were implementing more trade restrictions and trade defence measures on steel. The United States also introduced its Section 232 measures on steel. The European Union was concerned that these changes could redirect steel exports towards the European market. If more foreign steel entered the EU, European producers could face stronger competition and greater pressure on their prices, production and employment. The EU therefore opened an investigation into imports of certain steel products. According to the EU, the combination of global overcapacity, new trade restrictions and the US measures created a serious risk for European steel producers. These were the main reasons later used to justify the EU safeguard measures. The EU therefore had to choose between different options. If it did nothing, European steel producers could face increasing pressure from foreign imports. This could weaken an important industrial sector and make some European producers less competitive. It could also increase the EU’s dependence on foreign steel. However, if the EU completely stopped foreign steel from entering its market, this would be a much stronger form of protectionism. It could also create problems with the EU’s international trade commitments. The EU therefore chose a more limited solution. This is where the idea of the middle ground becomes important: the EU wanted to protect its steel industry, but it did not want to completely close its market to foreign producers.

In July 2018, the European Commission introduced provisional safeguard measures on certain steel imports. After further investigation, the EU introduced definitive safeguard measures in February 2019. The definitive measure covered 26 categories of steel products. The main instrument was a tariff rate quota, also called a TRQ. Under this system, a certain amount of steel could enter the EU without the additional safeguard duty. Once the quota was used, more steel could still enter the European market, but it was subject to an additional safeguard duty of 25%. This is important because the measure was not an import ban. Foreign steel was still allowed to enter the EU market. The measure simply made imports above the agreed level more expensive. The WTO describes the EU measure as a system of duty-free tariff rate quotas combined with a 25% duty on imports above the quotas.

This system is important for this paper because it shows both protectionism and free trade at the same time. It was protectionist because European steel producers received additional protection when imports went above the quota, however it was not a complete ban on foreign products. Foreign steel could still enter the European market. The EU therefore did not choose complete free trade, but it also did not choose complete protectionism. It tried to find a position between the two, which is why the EU steel case can be used as an example of the middle ground.

The idea of the middle ground is important because defensive protectionism is different from protectionism that simply tries to help domestic companies. A government may have a reason to protect an industry if there is a real economic problem or a risk to an important sector. However, the government should be able to show why the risk exists and why the chosen measure is needed. In the EU steel case, the Commission pointed to global steel overcapacity, an increase in trade restrictions, trade defence measures and the US Section 232 measures. The EU argued that these developments had contributed to increased imports into the European market and created a threat of serious injury to European steel producers. This distinction is important because not every industry that faces foreign competition should automatically receive protection. International competition is a normal part of international trade. If governments protected every domestic company that was losing customers to foreign competitors, international trade would become much more restricted. The purpose of defensive protectionism should therefore be more specific. It should respond to a serious problem that can affect an important domestic industry, rather than simply protecting companies from normal competition.

The WTO rules are central to this case. The EU used a safeguard measure, which is a recognised instrument under the WTO Agreement on Safeguards. Article 2 of the Agreement states that a WTO member may use a safeguard when a product is being imported in increased quantities and when these imports cause or threaten serious injury to the domestic industry producing similar or directly competitive products. The same article also says that safeguards must be applied to a product regardless of its source. This is directly connected to the principle of non-discrimination. The meaning of “serious injury” is also important. The WTO Agreement defines serious injury as a significant overall impairment in the position of a domestic industry. A threat of serious injury means that the serious injury must be clearly imminent. This means that a government cannot simply say that foreign competition is difficult; it has to show that the situation is serious enough to meet the WTO’s legal standard. This creates an important limit on defensive protectionism. A government may believe that an industry is strategically important, but this alone does not automatically give it the right to restrict imports. It must also follow the conditions of the WTO Agreement. This is one of the main reasons why the EU steel case is useful for studying the middle ground. The case shows that governments have some room to protect industries, but this room exists inside a legal framework. The temporary nature of safeguard measures is also important. Safeguards are not supposed to become a permanent way of protecting domestic companies from international competition. The purpose is to give a domestic industry time to adjust to increased imports. The WTO Agreement therefore contains rules about the duration and liberalisation of safeguard measures. This supports the idea that protection should be limited rather than permanent. The principle of non-discrimination is another important part of the case. A government should not simply choose one foreign country and decide to block its products for political reasons while allowing similar products from other countries to enter. Under Article 2.2 of the WTO Agreement on Safeguards, a safeguard measure is applied to a product regardless of its source. This means that a normal safeguard is different from a measure designed only to punish one particular trading partner.

The EU steel case is therefore more complicated than simply saying that the EU imposed tariffs on foreign steel. The measure was designed as a safeguard under WTO rules. It covered several steel product categories and used tariff rate quotas. This allowed foreign producers to continue accessing the European market while giving European producers additional protection when imports went above the quota. In this sense, the measure tried to balance two different goals: keeping international trade open and protecting an important domestic industry. However, using a WTO instrument does not automatically mean that every measure is legal. Türkiye challenged the EU steel safeguards at the WTO in March 2020. The dispute became known as “European Union — Safeguard Measures on Certain Steel Products”, DS595. Türkiye argued that several parts of the EU measures and the investigation behind them were inconsistent with WTO rules. The WTO panel therefore had to examine whether the EU had correctly applied the legal conditions for using a safeguard.

The panel report was circulated on 29th April 2022 and adopted by the WTO Dispute Settlement Body on 31st May 2022. The panel did not reject the whole EU policy. It rejected several of Türkiye’s claims: for example, the panel did not agree that the EU had improperly created 26 separate safeguard measures, but considered that the EU had applied one safeguard measure covering 26 product categories together. The panel also rejected some claims concerning the increase in imports and the allocation of tariff rate quota shares. This is important because the WTO decision was not simply a complete rejection of the EU’s protectionist policy. However, the panel also found important problems with the EU’s justification. One of the main findings concerned the connection between the unforeseen developments identified by the EU and the increase in imports. The EU had identified three main developments: global steel overcapacity; an increase in trade restrictions and trade defence measures; and the US Section 232 measures. However, the panel found that the EU had not properly explained which GATT obligations had been affected and had not sufficiently established the required connection between these developments and the increase in imports. The panel also found a problem with the EU’s finding of a threat of serious injury. The WTO Agreement requires a threat of serious injury to be based on facts. The panel found that the EU’s determination was not sufficiently based on facts as required by Article 4.1(b) of the Agreement on Safeguards. This is a very important lesson for the middle ground: a government can have a real economic concern, but it still needs strong evidence to justify restrictive measures. Economic security cannot simply be used as a general reason to avoid WTO rules.

The EU and Türkiye did not simply continue the dispute without a response. The WTO set a reasonable period for the EU to implement the recommendations. On 13th January 2023, the EU adopted Commission Implementing Regulation 2023/104, which entered into force on 14th January 2023. The EU informed the WTO that this regulation implemented the recommendations and rulings from the dispute. This shows that WTO rules can place limits on protectionist measures while still allowing governments to keep a measure in place in a modified form.

There are several arguments in favour of the EU measures. First, the safeguards gave European steel producers additional protection during a period of major changes in the global steel market. This could give companies more time to adapt to international competition instead of facing a sudden increase in imports. Second, protecting steel production can support wider industrial capacity because steel is used by many other sectors. Third, the tariff rate quota did not completely remove foreign competition. Foreign steel could still enter the European market, which meant that international trade continued.

There are also arguments against the measures. Protection can reduce competition and may increase costs for companies that use steel. If imported steel becomes more expensive, European companies that use steel in their own production may face higher costs. These companies could then become less competitive compared with companies in countries where steel is cheaper. This shows that protecting one industry can sometimes create costs for other industries. Another problem is the risk of wider protectionism. If one country introduces restrictions, other countries may respond with their own restrictions. This can create a cycle in which governments increasingly protect their domestic markets. Over time, this can make international trade less open and increase tensions between trading partners. This is why defensive protectionism should be limited to situations where there is a clear reason for government action.

The EU steel case also shows that the middle ground cannot simply mean choosing a small tariff. A real middle ground depends on several conditions. First, there should be a clear economic problem. Second, the government should have evidence showing that the problem exists. Third, the measure should have a clear connection with that problem. Fourth, the measure should be limited in scope. Fifth, it should respect WTO rules. Sixth, it should not discriminate between countries without a legal reason. Finally, the protection should not become a permanent way of protecting domestic companies from normal international competition.

The case also shows that the middle ground involves balancing different economic interests. Protecting steel producers can support domestic production and industrial capacity, but users of steel may face higher costs. Allowing more imports can benefit companies that use foreign steel, but it can increase pressure on domestic steel producers. There is therefore no solution that benefits every economic actor equally. The goal of defensive protectionism should be to deal with a specific vulnerability while avoiding unnecessary restrictions on the rest of the economy.

Another important point is that the EU measure was not only about protecting companies from cheaper imports. The EU presented the measure as a response to changes in the international steel market. This matters because there is a difference between protection based on a temporary or serious market problem and protection based simply on the idea that domestic companies should always be protected from foreign competition. The first can be closer to defensive protectionism, while the second can become economic nationalism.

The EU steel case is therefore particularly relevant because it shows both the possibilities and the limits of defensive economic protectionism. The EU was able to use a recognised WTO safeguard mechanism instead of completely closing its market. The tariff rate quota allowed foreign steel to continue entering the European market, while the 25% duty above the quota gave additional protection to European producers. The policy therefore created a controlled form of protection rather than a complete move towards protectionism.

At the same time, the DS595 dispute shows that the middle ground has clear legal limits. The WTO panel did not say that the EU could never protect its steel industry. Instead, it examined whether the EU had met the specific requirements of WTO law. Some parts of the EU’s argument were accepted, while other important parts were found to be insufficient. This demonstrates that the important question is not simply whether a country protects an industry. The important questions are why it protects the industry, what evidence it has, how the measure is designed, how long it lasts and whether it respects international rules.

The EU steel case therefore gives a balanced answer to the research question. Modern states can use defensive economic protectionism to protect important industries without completely abandoning free trade. However, this protection must remain within clear limits. The EU did not completely open its market, but it also did not completely close it. It used a tariff rate quota to control the level of imports while allowing foreign steel to continue entering the European market. At the same time, the WTO dispute demonstrated that this protection had to be supported by evidence and comply with the GATT and the Agreement on Safeguards. The strongest form of middle ground is therefore not simply a compromise between two extreme positions. It is a controlled approach in which governments protect important industries when there is a clear economic reason, while keeping markets open enough to preserve competition and international trade. The EU steel case suggests that defensive protectionism is most compatible with the WTO when it is targeted, based on evidence, limited, temporary or regularly reviewed, and applied without unjustified discrimination. If protection becomes permanent, very broad or mainly designed to remove foreign competition, it becomes much harder to describe it as defensive protectionism. The EU steel case therefore shows that countries can protect critical industries while remaining part of the international trading system, but they must carefully balance economic security with the rules and principles of the WTO.

Discussion

As seen from the synthesis of above-mentioned case studies, both dangers of current trade policy are exhibited here. On the one hand, there is the danger of fast liberalisation without proper cushioning witnessed in agriculture in Mexico and poultry in Ghana that may lead to disruption of domestic markets, destruction of rural life and decrease of economic sovereignty. On the other hand, there is the danger of uncontrolled protectionism like in the case of the long-lasting import substitution in India and the trade war between the US and China that can lead to market inefficiency, increasing costs of consumption and trade frictions.

These findings prove the main thesis of the research paper: while total exposure to the competition from abroad may jeopardise vulnerable domestic industries, excessive protectionism in the name of national interests poses threat of institutional collapse.

A way to manage this is the implementation of a disciplined and rule-based regime which already exists within the existing multilateral trading system. GATT Article XIX provides sovereign states with a legal means of providing non-discriminatory temporary relief to domestic industries in case of severe damage caused by unexpected import surges. GATT Article XXI also recognises the right of a state to provide the necessary protection for its national security interests and essential infrastructures during international emergencies.

The legal problem appears when sovereign states extend these two narrow and self-judging exceptions excessively in order to protect domestic commercial sectors from routine competition. In order to avoid the institutional collapse of the World Trade Organisation, state interventions should be limited by the criteria stipulated in Article XIX and not in Article XXI that can be used in order to introduce commercial protectionism. Thus, sustaining the economic resilience of the country in the context of the global trading system requires the strict adherence to these two articles and their temporary nature.

Conclusion

The comeback of the state intervention and economic protectionism in reaction to the practical issues caused by geopolitical tensions and the vulnerability of global supply chains is an evident phenomenon. Nevertheless, an attempt to strengthen national resilience by giving up non-discrimination criteria poses great danger for the world economy.

It can be concluded that although the WTO regime was initially created with a flexible nature, allowing temporary safety valves and narrow exemptions, the excessive use of those provisions in order to safeguard common businesses violates the credibility of the global trading system based on law. The “middle way” cannot be achieved unilaterally and by misusing the national security exceptions. On the contrary, the maintenance of a functional global trade system implies strict compliance of countries with the time-bound and non-discriminatory WTO safeguard provisions, along with reforming WTO dispute settlement mechanisms.

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* AI Disclaimer: The authors utilised AI as an explanation tool for their own understanding, for translation purposes and for organising the paper.