These are dangerous times if emerging and industrial countries don’t keep their markets open, says Carole L Brookins, an international consultant and former US executive director of the World Bank. She was the keynote speaker at the recent Grain SA congress where she explained the possible impact of protectionism on 60-odd years of market liberalisation. Annelie Coleman reports.
Globally, Trade is expected to shrink by more than 2,1% this year compared to a 6,2% growth in 2008. A major contributing factor is the combined exports and imports of the US, the world’s largest economy, decreasing by 18% in the four months from July to November 2008, says Carole Brookins, international consultant and former US executive director of the World Bank. She was a keynote speaker at the recent Grain SA congress in Bothaville. She explained the two-thirds drop in imports seriously hurt trading partners dependent on US markets. “Japan, the second-largest economy in the world, was heavily dependent on exports for growth, and it posted a 27% decline last November, compared to 2007,” explains Brookins.
“This is the biggest fall ever recorded in Japan, with imports decreasing by 14%. Close behind was China, with the most serious foreign-trade decline in a decade. Chinese exports fell 2,8% in December 2008 and 2,2% in November 2007, with exports contributing an estimated 20% to China’s economic growth since 2005.”
The economic contraction is both a broad and deep contraction, substantially impacting on emerging countries. “Trade growth is unlikely to resume for at least the next six months,” says Brookins. “The breakdown in global financial markets has impaired access to trade finance for many emerging-market exporters and importers. The World Bank is now putting together a new trust fund and trade finance facility to assist emerging economies.”
Pressure for protectionism
Brookins warned pressure for protectionism is growing and real. “The US Congress has enacted ‘Buy America’ provisions for projects financed as government stimulus programmes,” she says. “India increased tariffs on some foreign steel imports and raised tariffs on soya. Egypt has imposed import duties on sugar and Argentina has imposed new trade-related obstacles on the import of shoes and car parts. Russia has raised duties on combines, tractors and imported cars, and has centralised grain trading. The US and EU have imposed anti-dumping duties on a range of Chinese products. Brazil and Argentina have requested tariff increases for Mercosur, the Latin American free-trade area.”
A host of countries are subsidising local firms and factories and some of them are striking out against foreign workers. Hundreds of UK workers at oil refineries and power plants walked out on jobs, protesting against the use of foreign labour, while Spain has offered immigrants money to return to their home countries. The EU decided to reinstate its export refunds to dairy farmers after suspending payment in 2007. This could cost New Zealand US billion (R19,9 billion) in lost sales this year. Brookins emphasised these are dangerous times if world leaders don’t keep their markets open and stop systemic, national protection of preferred local industries.
“It’s a particular threat to agriculture and food markets,” she says. “We have worked hard to bring agriculture under international rules in the World Trade Organisation (WTO) Uruguay Round Agricultural Agreement. While there is still work to be done, we have locked in key basic rules negotiated under the now dormant Doha Development agenda.”
Trade liberalisation is not an event
warned trade liberalisation is a process, not an event. “If we reverse the 60-year trend to market liberalisation and globalisation, and abandon a global, rules-based system, we will face serious food wars and “beggar thy neighbour” policies in the future,” says Brookins. She says a real issue is the ability to access necessary food to support life. Japan, for example, has long-pursued a public policy of rice self-sufficiency and set a fixed level of domestic rice production to maintain food security. Rice imports were banned. However, when nearly 30% of Japan’s rice crop was destroyed in the 1993 growing season, Japan lifted the ban on imports. This caused chaos in the global rice trade because demand couldn’t be met.
No sector of international economics is more interdependent than the basic food trade, and only a small share of global demand is traded annually. “We have to be able to respond to shocks with enough supply and shared adjustment,” says Brookins. “The US is normally a ‘shock absorber’. Reduced trade barriers send market signals to producers and investors. These signals are crucial to improving productivity in the supply chain.” Most crises impacting on poor, nett-food importing countries can be ascribed to protectionism and poor food-aid policy.
Rice producers in Asia panicked and withheld supplies last summer, driving up global prices. Non-traditional wheat exporters like the Ukraine suspended exports, as global supplies contracted. The World Food Programme provides food aid, but it receives donation pledges annually as monetary commitments, not tonnage commitments. This terrible policy needs to be changed to provide a smoother path for accessing supplies for those in need when prices increase.
Investment in South Africa
Brookins says it’s time to strengthen, not weaken or close the South African market to investment. “Your country’s investment climate must be conducive to both domestic and foreign investment,” explains Brookins. According to the World Bank report Doing Business 2009, South Africa has improved its overall rank as investor friendly from 35 in 2008 to 32 out of 181 countries. Brookins says South Africa is a major gateway to Africa and its leadership in food-chain investment has penetrated through Africa, and into other emerging markets such as Colombia and industrial countries such as the US. “Your country has a global ‘brand’ of quality, professionalism and responsibility,” says Brookins. “Now is not the time to fall back out of fear to try and protect internal markets or artificially manage prices and markets in a commodity downturn and global slowdown. Global markets with transparent and enforced global rules work for all of us.” |fw