Protectionism global threat in lead up to G20 -- policy options to avert escalation
As part of a British government initiative to stimulate public debate prior to the G20 Summit in April, UK Prime Minister, Gordon Brown, is due to launch five websites at the World Economic Forum on Friday 30 January 2009, in association with the Centre for Economic Policy Research (CEPR), where Simon Evenett, Professor of International Trade and Economic Development, University of St.Gallen, Switzerland, was asked to present policy options available to keep trade flowing in the global economic downturn.
In his policy discussion paper, "Keeping borders open during the global downturn: what are the options?", Evenett warns of complacency on the part of policymakers and analysts in underestimating the need for governments to collaborate and stimulate debate to formulate policies to avert protectionism in the current economic climate.
Evenett maintains that there are very clear signs that protectionist tendencies are becoming more apparent, from the amount of unfair trade cases to the language being used in the press, as in a clear shift in discussions on commercial policy away from globalization and open borders, to mentions of devaluations, bailouts and "Buy America" measures.
"Fortunately, to date, no major trading nation has raised trade barriers across the board. Still, this has not prevented slews of unfair trade cases, reductions in export taxes and taxes on imported intermediate goods, and outright tariff increases from happening in certain sectors," he says in his policy options paper.
He warns of the many forms of protectionism, such as a case in Malaysia where firms have been instructed to lay-off foreign nationals before local staff, to more opaque measures such as "altering health and safety standards in a way that is more costly for foreign firms to comply with than domestic firms".
"This is a big concern for the 300,000 Indonesians working in Malaysian factories, especially as recent estimates suggest a third of them will be fired soon. Migrant workers, such as these, sent home collectively $251 billion dollars in remittances in 2007, which financed much consumption of essentials and investment in the world's poorer nations."
The knock-on effects of this are far more complex in today's interconnected world than they were postwar, says Evenett, in that living standards around the world are dependent on both exports and, also indirectly, through supply chains and subsidiaries overseas, which are proliferating in the world of outsourcing.
"Sophisticated supply chains organize production and sometimes design throughout East Asia, all with the goal of ultimately shipping goods to North America, Western Europe and Japan," he says.
The clothing and apparel industry have already suffered a crushing blow, says Evenett. "The number of apparel suppliers filing shipping manifests to US Customs fell from 22,099 in July 2008 to 6,262 in October 2008, a 70 per cent fall."
With such situations come the accompanying job losses, especially in countries such as China, other parts of Asia and India where the risk of unrest becomes more likely. In the developed world, the latest annual report of the US Council of Economic Advisers stated that in 2006 twenty per cent of American manufacturing jobs were generated directly and indirectly by exports, which means that potentially a fifth of manufacturing jobs could be at risk in such a climate, Evenett says.
He notes that the financial bail-outs announced so far by various governments have failed to restore lending to the private sector, additionally threatening job losses at a time when most commentators expect economic performance to deteriorate in the first half of 2009.
This makes it vital for countries leading up to the G20 to consider six policy options of: surveillance mechanisms to track trade measures taken by governments; standstills on imposing specific trade measures for the duration of the downturn; limiting the use of state aid; ensuring that large stimulus packages do not exclude foreign bidders; reducing the red tape in international trade to demonstrate a commitment to open markets, which is part of the WTO negotiations on trade facilitation; and to complete the Doha Round negotiations which some say are the clearest way in which to retain and further open borders.
Contact for further enquiries:
Simon Evenett, Professor of International Trade and Economic Development, University of St.Gallen; Tel: +41 (0)71 224 2315; Mobile: +41 76 345 2848; Email: firstname.lastname@example.org.
http://www.voxeu.org/index.php?q=node/2847 - Link to discussion paper "Keeping borders open during the global downturn: what are the options?"
http://www.cepr.org/default_static.htm - The Centre for Economic Policy Research
http://www.LondonSummit.gov.uk - Link to the debate featured on the UK government's Website after the launch on Friday 30 January 2009