Events & Issues
New Delhi, 23 March 2009
OCED To
BRIICS
PROTECTIONISM
WON’T HALT CRISIS
By Dr. P K
Vasudeva
The world’s largest high-growth
emerging economies are falling into the trap of protectionism amid the global
crisis and they seem to forget that they have been prospering as a result of
their relative openness to international trade and investment. This is an
assessment of the Organisation for Economic Cooperation and Development (OECD).
The OECD report released in Geneva focuses on the world’s largest high-growth emerging
economies of Brazil, Russia, India,
Indonesia, China and South Africa, which the
organization calls the BRIICS. It notes that the mistaken notion that the
current economic crisis was the result of free trade and market failure has led
to an anti-market backlash and calls for protectionism, including among BRIIC
countries. Protectionism is only a temporary phase, as the countries will
revert back to multilateralism once the meltdown crisis passes over in a year
or maximum two years.
Douglas Lippoldt, acting head of
Development Division at the Trade and Agricultural Directorate at OECD,
recently said in Paris
that “times of crisis are also times of opportunities. Trade protectionism is
not the way to tackle the current crisis. All countries, including OECD members
and BRIICS, should try more than ever to keep the international market open in
order to improve economic prospects for all.” Trade openness helps in the
economic growth of a country.
The report shows that all the six
BRIICS countries were champions of free trade and market liberalization, but
their openings to the market, barring China, have stalled. In Indonesia,
trade liberalization measures imposed by the International Monetary Fund (IMF)
following the financial crisis in 1997-98 have not been reversed, but there has
been creeping protectionism in agriculture, textiles and steel, mainly through
tariff barriers.
In Brazil, there was virtually no
trade liberalization in the years since tariff reductions were introduced in
the late 80s and mid-90s. In South
Africa, external trade liberalization has
stalled since the 90s and scepticism about liberalization has set in.
India is by far the most
protected country among the BRIICS, with relatively higher average tariffs in
industrial goods. New Delhi
is announcing new import tariffs on Chinese aluminium, and says it is studying
similar measures for other products. There is a growing risk of a trade war
between the two Asian giants.
Russia is now in the process of
accession to the WTO. But negotiations have been protracted and “stop-go” with
no indications of being concluded in the near future, even though Moscow has taken all
actions to comply with the requisite norms for early induction.
OECD suggested that BRIICS pursue
market openings through multilateral mechanisms under the WTO rather than
through preferential free trade agreements because FTAs may only create
complications for business and for the development of multilateral rules.
Developed country negotiators and
officials at the WTO, the powerbrokers in global trade, are striving hard to
impose a limited “consensus” on members of the organisation. Holding out the
threat of the breakdown of the multilateral trading system and the emergence of
damaging bilateralism, they are seeking an agreement on the framework for the
next round of global trade talks in June 2009 after the breakdown of Doha
Development Round on July 29, 2008.
OECD also noted that these six BRIICS
countries excelled in opening their borders to global trade, but were still
struggling to liberalize their own domestic trade and investment, or what the
OECD called the behind-border reforms.
Domestic reforms in service
regulations, regulation of technical standards, intellectual property rights
(IPR), public procurement rules, customs administration and competition rules
are a key challenge in all the BRIIC countries.
In Indonesia, the biggest problems
still include labour rigidity and impediments to investment, both domestic and
foreign investment. Better utilisation of labour inputs is one of the pre
requisites for putting growth on a higher, sustainable trajectory. A tightening
of labour legislation, especially with enactment of the Manpower Law of 2003,
has contributed to poor labour market outcomes. These include high
unemployment, persistent informality and a loss of dynamism in labour intensive
manufacturing sectors, such as textiles, clothing and footwear, in which Indonesia has a
comparative advantage.
Indonesia’s labour legislation is
rigid in relation to most countries in the OECD area, and particularly in
comparison with regional peers. On the basis of the OECD methodology for
assessing the stringency of a country’s employment protection legislation
(EPL), the Indonesian labour code is particularly restrictive on regular
contracts, due essentially to bureaucratic dismissal procedures and costly
severance pay requirements. There are also constraints on the use of temporary
and fixed term contractual arrangements, because of strict provisions on the
duration and number of extensions of such contracts, as well as on the nature
of the activities and occupations to which such arrangements apply.
Alternative indicators, such as
those featured in the World Bank’s Doing Business reports, also underscore the
stringency of Indonesia’s
EPL in comparison with regional peers and OECD countries. Several options can
be considered for making labour legislation more flexible. In particular,
consideration could be given to simplifying procedures for dismissals in the
case of regular contracts, relaxing restrictions on temporary work and fixed
term contracts, and reducing the burden of severance pay and long-term
compensation on employers.
OECD picked these six emerging
countries and made an update on them in this report because of their growing
and leading influence in the world economy. The BRIICS concept is an extension
of the idea of the original BRIC group. Goldman Sachs predicted that Brazil, Russia,
India and China (the BRIC) would become a larger force in
the world economy over the next 50 years and could become larger than the G6
(US, Japan, UK, Germany,
France and Italy).
OECD then included Indonesia
and South Africa
in recognition of their economic size, relative to other OECD members.
Leaving aside oil-rich Saudi Arabia
and two other large emerging OECD economies
(Mexico and Turkey), the BRIICS are by far the largest economies in the
developing world in transition, and the only countries in this category with
gross national incomes of over US$200 billion per annum. Developments are going
to be closely watched.--INFA
(Copyright,
India News and Feature Alliance)
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