NS3040 Fall Term 2014 Protectionism

Rising Protectionism in EMs I KIM Kyung-Hoon, Rising Protectionism in Emerging Countries, SERI Quarterly, January 2013 Many emerging economies faced with slowing economic growth and declining exports due to Weak global economy Sluggish domestic consumption Little fiscal space to stimulate economies Looking for growth any way they can muster Led to a surge in trade protectionism WTO warns – protectionism has slid to dangerous levels for first time since the global financial crisis of 2008 Biggest gains in protectionism Russia, Argentina and India 2

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Rising Protectionism in EMs III Methods of trade protectionism among emerging economies Shifted from conventional tariffs and quantitative import restrictions To non-tariff barriers – opaque protectionism on the rise More subtitle measures outstripping overt protectionist measures Tariff rates in emerging countries have either declined or showed little change since financial crisis of 2008 Partly due to the growth of vertical specialization in global economy in 2000s Many emerging economies have concluded free trade agreements with large economies Or joined the WTO 4

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Rising Protectionism in EMs V Rising protectionist trends in EMs fall in three main categories: Buy national policies Stiffer technical barriers and safety regulations, and Controls on foreign investment 1. Buy National encourage purchase of domestically produced goods and services Led by U.S. and China U.S. provision in American Recovery and Reinvestment Act of February 2009 – U.S. steel and iron in federally funded projects China mandated purchases of foreign products or services in government investment projects obtain permits Other emerging economies – particularly Brazil have followed. Also India. 6

Rising Protectionism in EMs VI 2. Technical, Safety Barriers Variety of testing, certification procedures used to restrict trade Deceptive because their stated purpose is quite different Until recently measures have been used more actively in developed countries Measures may be hurting local industries due to increased costs of compliance 3. FDI Controls As manufacturing sector struggles in many emerging countries, primary sector increasing source of tax revenues and investment expansion Prompting emerging countries to strengthen controls on foreign capital and ownership particularly in natural resources 7

Rising Protectionism in EMs VII FDI (contd) Resource nationalism increasing as is increased state control over resources Countries also inclined to restrict foreign investments to ensure food security and farmland Also in service sector – finance and telecoms. Measures have increased uncertainty and lower investment rates Assessment Trend to increased protectionism likely to continue even after global economy recovers Many countries feel they need to promote domestic products to advance their manufacturing sector over the mid- to long term Will only result in higher costs and slower world economic growth 8

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