Any effort to close off markets will worsen the grim economic climate, not improve it
By SHADA ISLAM 10 February 2009
European Union leaders have spent the last few weeks raging against a controversial ‘Buy American’ provision in President Barack Obama’s draft economic stimulus bill. The anger is justified.
But EU leaders would be well-advised to pay equal attention to the re-emergence of the spectre of protectionism - or economic nationalism as some prefer to call it - in their own backyard.
The stakes are high. In an increasingly globalised world, any effort to close off markets - and other more modern forms of protecting local economies at the expense of global trade - will worsen the grim economic climate, not improve it.
More damagingly for the EU, economic nationalism could mean the end of the bloc’s successful internal market, which allows the restriction-free movement of goods, services and people across borders.
British Prime Minister Gordon Brown was the first off the mark last year by insisting that he wanted ‘British jobs for British workers’. He struggled to backtrack last week as Britain was hit by wildcat strikes protesting a decision by French-owned Total oil company to bring in 300 Italian and Portuguese contract labourers at a huge construction project in Immingham.
EU rules provide that Italian and Portuguese labourers have the same right to work in Britain as British citizens do.
But British workers at the refinery said that they wanted jobs to go to locals, not to cheaper foreign workers.
Officials have come under similar pressure in Ireland where workers want construction companies to give precedence to Irish labourers over foreigners. Some 300,000 Polish workers who flocked to Ireland’s once booming building sector after Poland joined the EU in 2004 have now returned home as jobs become scarce in their once-welcoming host country.
Never one to sit on the sidelines, French President Nicolas Sarkozy has caused an uproar in EU ranks by telling French car companies to locate plants at home rather than in countries such as the Czech Republic, an EU member.
The Czech Chamber of Commerce accused Mr. Sarkozy of encouraging protectionism and giving ‘an indirect signal for the deconstruction of the European Union’.
Mr. Sarkozy, seeking to reassure French workers about the government’s response to the economic crisis, said that he expected French carmakers benefiting from state aid to keep production at home.
‘Setting up a Renault factory in India to sell Renaults to Indians is justified,’ he said. ‘But when a manufacturer . . . sets up a factory in the Czech Republic to sell cars to French people, that’s unjustified.’
The French leader can be forgiven for seeking to curry public favour. Public sector strikes hit France last week as trade unions demanded government action to protect jobs. Labour unions are also concerned at stagnating salaries and slumping purchasing power which they say were ignored when the government drew up its US$34 billion economic stimulus package last year.
French leaders have so far promised to stay the course. But the country has a long tradition of leaders reversing policies when faced with public and trade union opposition to change and reform.
In Germany, Europe’s largest economy, a recent study by Ernst & Young indicated that 78 per cent of small- and medium-sized companies favoured the state embracing ‘protectionist measures’ to shield them from the global recession.
Warnings that governments should steer clear of such beggar-thy-neighbour policies have come from Pascal Lamy, the head of the World Trade Organization, and Britain’s Business Secretary Peter Mandelson, who said that ‘protectionism would be a sure-fire way of turning recession into depression’.
While such talk is reassuring, a new global trade liberalisation agreement would be even more so. However, despite eight years of talk and delays, efforts to clinch the Doha trade talks appear as elusive as ever.
A preliminary outline of a deal is, however, set to be presented to the summit of G-20 leaders in London in early April.
Mr. Lamy has said that countries are 80 per cent of the way to completing the agreement, but admitted recently that the economic crisis has ‘made it both easier and more difficult to conclude the round’; easier because WTO members now recognise the importance of the round, but more difficult for countries to make concessions that might harm parts of their electorates.
EU officials point out that developing countries have raised tariffs in recent months, despite the G-20 pledge in November last year to refrain from doing so. Russia has increased duties on imported cars by 20 per cent.
There is also concern over an increase in the use of anti-dumping measures, which raise tariffs when imports are seen as being priced below cost. In recent years, countries such as China and India, which have had anti-dumping rules used against them by the US and the EU, have become big users of anti-dumping duties themselves.
Combating the new inward-looking public mood is not going to be easy for policymakers across the world given the temptation to take the easy - and politically popular - road of blaming foreign imports and foreign workers for their domestic woes.
In today’s interdependent economies, however, in both rich and poor countries, economic nationalism could be akin to economic suicide.
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Protectionism is economic suicide
Any effort to close off markets will worsen the grim economic climate, not improve it
By SHADA ISLAM
10 February 2009
European Union leaders have spent the last few weeks raging against a controversial ‘Buy American’ provision in President Barack Obama’s draft economic stimulus bill. The anger is justified.
But EU leaders would be well-advised to pay equal attention to the re-emergence of the spectre of protectionism - or economic nationalism as some prefer to call it - in their own backyard.
The stakes are high. In an increasingly globalised world, any effort to close off markets - and other more modern forms of protecting local economies at the expense of global trade - will worsen the grim economic climate, not improve it.
More damagingly for the EU, economic nationalism could mean the end of the bloc’s successful internal market, which allows the restriction-free movement of goods, services and people across borders.
British Prime Minister Gordon Brown was the first off the mark last year by insisting that he wanted ‘British jobs for British workers’. He struggled to backtrack last week as Britain was hit by wildcat strikes protesting a decision by French-owned Total oil company to bring in 300 Italian and Portuguese contract labourers at a huge construction project in Immingham.
EU rules provide that Italian and Portuguese labourers have the same right to work in Britain as British citizens do.
But British workers at the refinery said that they wanted jobs to go to locals, not to cheaper foreign workers.
Officials have come under similar pressure in Ireland where workers want construction companies to give precedence to Irish labourers over foreigners. Some 300,000 Polish workers who flocked to Ireland’s once booming building sector after Poland joined the EU in 2004 have now returned home as jobs become scarce in their once-welcoming host country.
Never one to sit on the sidelines, French President Nicolas Sarkozy has caused an uproar in EU ranks by telling French car companies to locate plants at home rather than in countries such as the Czech Republic, an EU member.
The Czech Chamber of Commerce accused Mr. Sarkozy of encouraging protectionism and giving ‘an indirect signal for the deconstruction of the European Union’.
Mr. Sarkozy, seeking to reassure French workers about the government’s response to the economic crisis, said that he expected French carmakers benefiting from state aid to keep production at home.
‘Setting up a Renault factory in India to sell Renaults to Indians is justified,’ he said. ‘But when a manufacturer . . . sets up a factory in the Czech Republic to sell cars to French people, that’s unjustified.’
The French leader can be forgiven for seeking to curry public favour. Public sector strikes hit France last week as trade unions demanded government action to protect jobs. Labour unions are also concerned at stagnating salaries and slumping purchasing power which they say were ignored when the government drew up its US$34 billion economic stimulus package last year.
French leaders have so far promised to stay the course. But the country has a long tradition of leaders reversing policies when faced with public and trade union opposition to change and reform.
In Germany, Europe’s largest economy, a recent study by Ernst & Young indicated that 78 per cent of small- and medium-sized companies favoured the state embracing ‘protectionist measures’ to shield them from the global recession.
Warnings that governments should steer clear of such beggar-thy-neighbour policies have come from Pascal Lamy, the head of the World Trade Organization, and Britain’s Business Secretary Peter Mandelson, who said that ‘protectionism would be a sure-fire way of turning recession into depression’.
While such talk is reassuring, a new global trade liberalisation agreement would be even more so. However, despite eight years of talk and delays, efforts to clinch the Doha trade talks appear as elusive as ever.
A preliminary outline of a deal is, however, set to be presented to the summit of G-20 leaders in London in early April.
Mr. Lamy has said that countries are 80 per cent of the way to completing the agreement, but admitted recently that the economic crisis has ‘made it both easier and more difficult to conclude the round’; easier because WTO members now recognise the importance of the round, but more difficult for countries to make concessions that might harm parts of their electorates.
EU officials point out that developing countries have raised tariffs in recent months, despite the G-20 pledge in November last year to refrain from doing so. Russia has increased duties on imported cars by 20 per cent.
There is also concern over an increase in the use of anti-dumping measures, which raise tariffs when imports are seen as being priced below cost. In recent years, countries such as China and India, which have had anti-dumping rules used against them by the US and the EU, have become big users of anti-dumping duties themselves.
Combating the new inward-looking public mood is not going to be easy for policymakers across the world given the temptation to take the easy - and politically popular - road of blaming foreign imports and foreign workers for their domestic woes.
In today’s interdependent economies, however, in both rich and poor countries, economic nationalism could be akin to economic suicide.
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