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Rising Trade Protectionism

Updated On: Sep 18, 2007

There are troubling signs of rising trade protectionism internationally.

In an interview with the Straits Times, Steve Forbes warned that the current tide of trade protectionism is even more dangerous than the temporary slowdown in the United States economy. He noted that, “In the US, among certain political circles, there is growing protectionist sentiment. And you see it around the world too. You see it in Europe and even in China, there is some reaction against foreign investment, like ‘Do we need the capital any more?’”

Steve Forbes pointed out that, “In the US, the key thing to watch for is our presidential election next year. If the Democrats win, we could have some very damaging protectionist measures taken.”

He urged China and India to amass the political capital needed to put paid to US protectionists by cracking down on piracy, cracking the whip against anti-business provincial and municipal governments, and cracking open all safeholds against free trade.

China is often named as one of the trade villains in US political circles and threatened with trade sanctions for unfair trade practices. In a surprising turn, last week, China threatened the US with litigation at the World Trade Organisation (WTO) for imposing anti-subsidy duties on its paper exports. This is the first dispute brought by China on its own at the WTO. Previously it joined a case brought by the EU against the US for restricting steel imports.

The US government began investigating Chinese paper imports last year after a complaint by NewPage Corp., which produces coated paper. NewPage contended that it faced unfair competition from Chinese companies which it alleged received illegal government support.

Other states concerned about trade protectionism have been tempted to sign bilateral free trade agreements (FTA) with the US. However, a Nobel laureate and the United Nations Conference on Trade and Development (UNCTAD) warned that such bilateral deals do not benefit developing countries.

On his recent visit to Kuala Lumpur, Nobel laureate and former World Bank chief economist Joseph Stiglitz strongly criticised FTAs involving the United States, saying US tariffs are so low (3% to 5%) that developing countries don’t need an FTA to export to the United States. He also warned that developing countries lose ‘a great deal, especially access to intellectual property.’

Stiglitz’s sentiments are also reflected in the UNCTAD’s annual Trade and Development Report (TDR).  The latest TDR cautioned that having FTAs with the US or other developed countries would not necessarily increase market access but the developing countries which participate in such FTA “have to give up a large part of the policy space they might otherwise have used to promote the creation of new productive capacities, industrial upgrading and structural change in their economies.”  It concluded, “Thus it would be prudent for developing countries to be cautious and not to rush into North-South bilateral or regional FTA.”

Sources:

Threat of anti-trade sentiment looms, says Forbes (The Straits Times, 15 September 2007)

Dealing with rising trade protectionism (The Straits Ties, 15 September 2007)

China threatens WTO claim over US export duties (The Financial Times, 15 September 2007

China files WTO complaint over US import duties on Chinese paper (Associated Press, 14 September 2007)

New warnings on FTAs (The Malaysia Star, 9 September 2007