protectionism and developing countries
TRANSCRIPT
Protectionism and Developing Countries
Nicolas FOUCRAS PhdUniversity TEC de Monterrey
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)
“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
• 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 DCsUSA adopted several unilateral and sudden measures affecting Mexican imports: avocado, shrimps, tomatoes, tuna…
• 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
– Problem = method of calculation to prove dumping is doubtfulDumping = to sell bellow the costs of productionBut: 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
• 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)
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
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)
• 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
– 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
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
• 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 country’s 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 <60%)
– ICs suffer less pressure due to the fact that they represent un
critical mass for the proper functioning of the international economyÞ ICs have more capacity to make autonomous decisions
(able to retain more national sovereignty)
– Generally, ICs do not follow the rules that they inforce to DCs; they do not respect the Washington Consensus* that they imposed to many DCs directly or through international organizations
*The Washington Consensus refers to a set of specific economic policy prescriptions based on the neoliberal
paradigm and considered as necessary to promote development in DCs and their “good integration into
the globalization” during 1980s and 1990s
The term was introduced in 1989 by economist John Williamson
It was supported by ICs (USA and West European countries), prominent economists (Friedman and Hayek) and IOs (such as the WTO, IMF and WB)
Examples of policy prescriptions:
1. Fiscal policy discipline: to avoid large fiscal deficits
2. Interest rates: they have to be market determined (it affects Development banks which have low rates to maintain access to financial market for key social sectors: agriculture, small business sector, craft industry…)
3. Trade liberalization: liberalization of imports and elimination of quantitative restrictions
4. Liberalization of FDI (cancel any obstacle)
5. Privatization of state enterprises…
Activity:
• Form groups of 3
• Answer the question (10 minutes):Why countries adopt protectionist measures?
• Make your presentation
Why DCs are using protectionist measures?
• To respond to protectionist measures adopted by ICs• To protect sensitive sectors (agriculture; bank;
manufacture, small retailers, defense…)• To protect infant industry (to favor industrial upgrading)• To control national price
Argentina: Kirchner adopted high tariffs on export of agricultural products ( to slow down exports)Þ More products remain in the national economy Þ It allows to maintain low prices (other consequence for
the rest of the world: less agricultural products => increase price)
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
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
G20Hard core of the future global
government?
• 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) ÞTo 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
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:
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
Characteristics of the MINT Vs BRICS
Rapid growthAccelerated integration into the international economy
MINT
BRICS
Much more pragmatic with regard to their integration
into the globalization
During the last decades the international panorama has changed: now BRICS appear to be among the first economies
=> justifies their membership into the G20
MINT economies will appear among the most important in the next future
according to WB and Goldman Sachs
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 equilibrium in the decision-making process– Goal: To organize the redistribution of powers between ICs
and DCs
Towards a Polycentric pattern that will balance/threat the US hegemony?
• Zakari: consolidation of the BRICS reflects a process of redistribution of power that is inevitable
• However it is difficult to talk about a “counter-power” because there is not any real unified front representing the “South” and able to counterbalance effectively the hard core (Foucras)
• However on a long-term vision many agree that China could threat the US hegemony if there is no change in the current trend
Global issues negotiated and objectives (priority is different depending on the country):
• The debt crisis and lack of liquidity for productive sectors and Gvts• The financial regulation and transparency (fight against Tax havens,
tax evasion and corruption)• Macro-policy cooperation (Goal: to coordinate public decisions to
foster international stability)• The promotion of multilateral trade (to face the current difficulties in
the WTO)• To develop energy sustainability and to consider what many call the
Green growth (to fight global warming)• To coordinate policies and strategies to face unemployment in ICs• To reduce Food insecurity in DCs and LDCs (to stabilize the situation
and to control migration)• To reform the International Financial Architecture (IMF quotas)
There are parallel summits
• B20: “20 Business” represents business community
• L20: “Labor 20” represents Labor Unions
• T20 “Think 20” “the world’s leading think tank’s representatives”
• C20 represents Civil society
• Y20 represents youth
Diferent subgroups are participating:
There are important efforts/desires; however…
• G20 and other global initiatives (and all the international architecture) have not been able to anticipate and to resolve the different crisis and externalities: – Poverty, Exclusion and Migration– Concentration of the wealth among few people => growing inequality (i.e.
problem of global wealth distribution)– Unemployment and Informal economy– Pollution and global warming– Deterioration of the access to food and water– The lost of sovereignty/democracy (power transference from societies to
global actors)– Violence and transnational crime…
Þ Welfare deterioration (individual is a means and not the final purpose)Þ Human survival is at risk (Tiberghien)
• It has focused above all on rescue programs to save the global banking failures (short term vision)
Wealth Distribution among countries
• 200 years ago, ICs were only 3 times richer than poor countries
• By the 1960s, they were 35 times richer• Today, the multiplier is 80
“The richest 300 people have more money than the poorest 3 billion people combined” (UNICEF)
The current situation of the global order; or global equilibrium depends on:
• Few that are consuming in access (USA and part of Europe) => it means high debt (government, household and firms)
• Many societies are transferring their gains to ICsDCs depend on the level of consumption in ICs (their production/export level) => they are willing to transfer and to rescue these economiesÞTransfer of the wealth from DCs to ICs ÞAffects the potential growth and social development of DCs
• However the situation is changing progressively: new social class in DCs wants to consume and governments are more and more worried about domestic consolidation first=> there is a growing retention
Debt is very concentrated in ICs => flow of money is from south to north
Consumer market is concentrated among ICs
What are the obstacles for the construction of a new economic governance with more justice for DCs?
• Distributional dilemma: to change the order means a redistribution of powers: it will lead to a new political/military equilibrium in favor of China and others opposition from the main powers and risk of conflicts
• Strong opposition from actors gaining more from the lack of governance (ICs, financial market, Banks and MNF)
• Multipolarity: many actors and interests (State and Non-State actors) it is difficult to reach consensus and to take decisions
• New potential hegemon (China) reluctant to take responsibilities (there is an important cost to manage global/common goods: peace and trade); very slow to assume its role as were USA at the beginning of the last century
• USA’s domestic politics: efforts to slow the post-hegemonic transition (political cost)
• China, USA; EU… depend on the stability of the actual order as their destiny is linked to the US economy and the USD (straightjacket) . Ex: China is depending on its exports to USA and EU => it agrees to support the current order
• Financial markets fear any reform or change in the global order (uncertainty)
• ICs do their best to slow the consolidation of the global governance (i.e USA does not want to institutionalize G20 or to reform the IMF)
=> Difficult to consolidate global governance that would allow:– Better protection of everyone's interest – Better transparency– Better fair trade– Reduced uncertainty– Redistribution of power according to the new outlook
Activity:
• Form groups of 3
• Answer the questions (15 minutes):– What is the strength of the BRICS?– What is the weakness of the BRICS?– Do you think they are able to change the current order?
Why?
• Make your presentation