protectionism and developing countries

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  1. 1. Protectionism and Developing Countries Nicolas FOUCRAS Phd University TEC de Monterrey nicolas.foucras@itesm.mx
  2. 2. Protectionist and neo-protectionist measures adopted by ICs and DCs between 2008 and 2013 1st: Russia and then Argentina, Germany, UK, China, Brazil, Italy, France, Japan, Indonesia, USA Main problem to make an evaluation of protectionism: there is not any consensus about the definition (about what should be qualified as a protectionist measure)
  3. 3. National security = Main arguments to justify protectionism used by ICs and DCs (Cateora y al. 2013) => Protection against dangerous products for health, social, environmental or cultural reasons Toys imported from China using paint harmful to health according to US authorities (declared that the paint was not suitable for children's toys) Mexican trailers can not enter the US national territory; Justification: they do not meet US environmental standards Chinese solar panels: USA and EU declared that the products do not respect technical norms so they could affect the national security
  4. 4. Quotas for foreign music or movies in EU or Quebec; argument = Protection of the national culture Many ICs implement technical control to slow down imports from DCs (to pass through a series of checkpoints on its way to the national market => consequence: it delays imports) They also adopt sanitary, environmental and labor measures that enable to filter imports from DCs USA adopted several unilateral and sudden measures affecting Mexican imports: avocado, shrimps, tomatoes, tuna
  5. 5. Other protectionist measure = Dumping: It is true that DCs are using dumping to conquest the international market and to boost their industrialization process (1st it destroys local production and once competition disappeared they can increase the price) = predatory pricing ICs implement more and more anti-dumping measures to protect manufacturing sector/employment (it allows a country to reestablish tariff) DCs say ICs are overusing this mechanism to protect their national economy and in most of the cases it is not justified
  6. 6. Problem = method of calculation to prove dumping is doubtful Dumping = to sell bellow the costs of production But: how to calculate the costs? Most ICs evaluate costs taking as a reference countries like Scandinavian where costs are very high => easy to accuse of dumping any import product
  7. 7. Other measure to protect the economy: ICs launch campaigns of patriotic consuming (By US products) Objectives: To try to convince people that domestic products are the best To guide consumer behavior To establish rules of acquisition for public/governmental expenditures (For instance: infrastructure projects: highway, airport, hospital, school) ICs subsidies sectors to improve their competitiveness (ex: automobile, agriculture, craft industry)= form of protectionism (they create distortions of competition in favor of ICs products because they lower costs of production; for instance assuming costs of R&D)
  8. 8. ICs have lowered their tariff rates since several decades however they use more and more non-tariff barriers Meanwhile, there was an adjustment for DCs (1990s): they reduced their tariffs. Actually it is not so positive for them because it represents important public loss due to the fact that it was almost the unique tax revenue for the Governments => GATT/WTO negotiations have eliminated the most important fiscal sources for DCs
  9. 9. Why trade is not fair? ICs are slightly open compared to DCs ICs tend to open to international competition only the most competitive sectors; opening rate of USA or European countries is only 20% (OECD) => macroeconomic indicators are not too dependent on international trade: national economic structure is more important (higher political control over the current situation and the future) Meanwhile most of the DCs have a high opening rate due to international pressures (Chile and Mexico: opening rate is 80% against GDP in 2015)
  10. 10. MINT are much more open than BRICS (except China: 60% due to the activities concentrated in SEZs): 60% Vs 20% (India or Brazil): Paradigm is different: BRICS decided to insert step by step (pragmatism) with the purpose to ensure the economic survival of strategic sectors in terms of development or because they represent an important part of the population (banking, defense, high technology, manufacturing sector in general, agriculture, small structures of distribution) They also have the political capacity to resist foreign pressure (capacity to create forces to counterbalance: alliances and strong State activism) Case of India: Government slow-down the entry of the hypermarket and supermarket chains that will threaten the small and local structures as well as agriculture that are employing many people
  11. 11. MINT suffer more international pressures: Close to core markets: USA or EU Weak governments (closer to external actors than their own society) (important centrifugal forces) They have turned to be very strategic spaces for the proper functioning of the international market and global value chains: manufacturing or natural resources => lost autonomy of decision
  12. 12. Opening commercial index: value exports + imports against GDP => How important is international trade for a country? (2010) For European countries: it appears to be important however it is mostly an intra-reagional trade. It is not trade with the rest of the world (around 20%) They privilege consolidation of the national economy
  13. 13. Actually rules are not the same for everyone: The probability to forgive a protectionist measure or a bad behavior adopted by an IC is higher than one adopted by a DC If we observe the debt crisis: international pressure to implement austerity measures depends on the countrys weight in the international economy (LAC or Africa or even Greece Vs USA, UK, France or Germany which debt is >60% GDP) (even Germany is not respecting the Stability Pact which it used to enforce in 1998 in all the Euro Zone: one of the commitment was to maintain debt increase price)
  14. 18. Why ICs are protectionist? To maintain food and energetic security (they do not want to depend on DCs for such strategic goods) => high subsidies to agriculture which is a form of protectionism To preserve employment (to avoid a political cost) To maintain or to increase competitiveness (they want to preserve the control over high tech sector and other manufacturing sectors: defense, technology, pharmaceutical, aerospace, automobile,) => to maintain political power
  15. 19. In many ICs there is a bad perception about globalization (Italy, USA, Japan, France): it is perceived as a threat to employment (society is very suspicious when you talk about opening the economy to global competition) = public opinion is reflected in the trade policy of ICs and it explains as well why ICs are slightly open in DCs: there is the belief that globalization will create job If we analyze the public opinion
  16. 20. G20 Hard core of the future global government?
  17. 21. Created in 1999 by G7 Goal at the beginning: To give an appropriate response to Financial Crisis in DCs that could affect the global stability (Mexico 95; Asia 97; Russia 98; Brazil 99; Argentina 2001) To face instability of the International Monetary System (IMS) i.e. To help IMF to stabilize global financial market This role has grown after the 2008 crisis (which is a crisis originated in the ICs) as well as the number of countries: Creditors were invited (BRICS) MINT countries (except Nigeria): because they are key countries for international economy due to their important role in the global value chains (they received important FDI from ICs during past 2 decades) The way to operate: promoting discussion (it does not create a hard law) + formulate proposals and coordinated actions
  18. 22. Structure 20 members (EU appears as a full member) Rotary Presidency (1 year) (2012: Mexico; 2013: Russia; 2014: Australia; 2015: Turkey; 2016: China) Composition Director of the IMF President of the WB Ministers of Finance Presidents of Central Banks Delegates of each Government After 2008: Head of States and Head of Governments Population:
  19. 23. Special invitations Traditionally other actors are participating in pre- summit meetings : Chair of the ASEAN Chair of the African Union (AU) A representative of the New Partnership for Africa's Development (NEPAD): Economic development program of the AU Economic co-operation and integration among African countries Director of the International Labor Organization (ILO) Director of the Organization for Economic Co-operation and Development (OCDE) Representatives of the UN Representatives of the WTO Spain is a permanent non-member
  20. 24. Characteristics of the MINT Vs BRICS Rapid growth Accelerated integration into the international economy MINT BRICS Much more pragmatic with regard to their integration into the globalization
  21. 25. During the last decades the international panorama has changed: now BRICS appear to be among the first economies => justifies their membership into the G20
  22. 26. MINT economies will appear among the most important in the next future according to WB and Goldman Sachs
  23. 27. 2 perspectives to explain G20: Hegemonic: ICs gather with other countries to legitimize their decisions and their model of international economy => Goal = to save the hegemonic model established in 1944 and to preserve the current order Cooperative: It reflects a change in the hegemonic global governance implemented by ICs in 1944 It reflects the mutual influence/interdependence and ICs accept this new situation It reflects a better equi

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