Global Trends by Martin Khor
Monday 13 September 2010
Beware of new
Last week's complaint against Chinese clean-energy subsidies and recent actions against outsourcing are signs of growing US protectionism affecting developing countries.
With its economy in bad shape, and a Congressional election approaching, various actors in the United States seem to be preparing the ground for a bout of protectionism, with developing countries the target. There were two examples of this last week.
First, an American trade union
filed a legal case with the government accusing
Meanwhile, the New York Times published a front page article giving details of how Chinese authorities subsidise producers of solar and wind technology in allegedly unfair ways.
This is truly ironic for many
reasons. On one hand, developing countries, especially
This pressure is being applied at the global climate negotiations. In addition, the US House of Representatives has passed a bill that authorises the President to impose a “border adjustment measure” (with the effect similar to a tariff) on carbon-intensive imports of countries that are deemed not to have taken sufficient action on climate change.
The United Steelworkers union
has filed a 5000-page legal case with the
The union claims that the central
and provincial governments have used land grants, low-interest loans
and many other measures that allow Chinese companies to gain market
share at the expense of jobs in the
The international trade expert Bhagirath Lal Das has pointed out that the WTO's subsidies agreement is biased in favour of developed countries because it allows types of subsidies that
they use (especially research and development grants) while forbidding or restricting types of subsidies that developing countries tend to use.
Developing countries, because of lack of resources, cannot match the R and D subsidies that the rich countries provide. They can however provide assistance to firms for infrastructure (such as land and utilities) and credit (bank loans at preferential rates) so as to encourage their production.
In many developing countries, such subsidised facilities are given, including land and utilities in free trade zones and credit through development banks and to small and medium enterprises.
It would be most unfortunate if developed countries, facing high unemployment and other economic woes, were to make scapegoats of developing countries and take them to court in the WTO for using these measures.
The New York Times article, while criticising China's clean-energy subsidies, also reported that the US itself has approved US$10 billion in grants and financing to new companies and another US$10 billion for economic stimulus programmes in the clean energy sector, besides investing in infrastructure that benefits industry.
Moreover, the US (and European countries) have spent trillions of dollars to rescue their financial institutions and automobile companies. If free-enterprise and free-trade principles were to apply, these measures should not be allowed. Yet no developing country has taken WTO action against these countries.
Another imbalance in the trade
rules is that the
It is thus most unfortunate that
The developed countries should be encouraging developing countries to develop green technologies instead of placing obstacles.
If the WTO rules restrict the measures needed towards climate-friendly technologies, then these rules should be reviewed and reformed to allow developing countries to use them to promote environmental technology.
A second case of potential
“For years, our tax code has actually given billions
of dollars in tax breaks that encourage companies to create jobs and
profits in other countries,” said Obama. “I want to change that. Instead
of tax loopholes that incentivise investment in overseas jobs, I’m proposing
a more generous, permanent extension of the tax credit that goes to
companies for all the research and innovation they do right here in
“If we’re going to give tax breaks to companies,
they should go to companies that create jobs in
The Indian newspaper The Hindu has voiced concern that this may yet be another protectionist move that will affect the Indian IT industry.
Obama's speech follows the recent passing of an
executive order by the
This move in turn follows a controversial legislation
that increased fees for visas in the H-1B and L1 categories, which also
As politicians court voters in an environment
of economic downturn in the