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 India2

Rising Protectionism in EMs II

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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 WTO4

Rising Protectionism in EMs IV

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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.

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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

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Rising Protectionism in EMs VIII

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