89-ocrf585-june2010

89-ocrf585-june2010 - OCR Unit F585 June 2010 Pre-release...

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OCR Unit F585 June 2010 Pre-release Revision Toolkit Page 47 Extract 4: The Return of Protectionism When individual countries are in economic trouble the lobbying for protectionist policies nearly always gathers momentum. And extract 4 focuses on this issue with particular reference to the ongoing trade and currency disputes between the USA and China together with individual examples of protectionism introduced during the downturn. Global Trade Alert’s latest report identifies no fewer than 192 separate protectionist actions since November 2008, with China as the most common target. Russia has introduced the biggest number of protectionist measures since the crisis started - and of course Russia is not a member of the WTO so it not bound by any commitment to reduce trade barriers. This extract will provide good opportunities for you to analyse and evaluate the economic and social costs and benefits of protectionism. And consider whether the wave of globalisation of the last twenty years might be (perhaps temporarily) coming to an end. Are we heading for a period of de- globalisation ? Extract 4 Passages and Comments “Whilst it was good news that major developed nations were recovering from recession at the end of 2009, some of the policy reaction to the global downturn was worrying. It had become increasingly apparent that there had been a return to economic nationalism during the recession. Tariffs and quotas had been imposed by some countries on imports and restrictions had been placed on takeovers of national firms by foreign capital.” Protectionism / economic nationalism have many faces. This passage of extract 5 mentions three examples of barriers to trade and the free flow of capital: Import tariffs (including anti-dumping measures) Import quotas (a non-tariff barrier to trade) and import licences Restrictions on foreign take-overs of domestic businesses We will look at each of these in turn, but keep in mind that there are many other types of protectionist measure available to national governments: Subsidies for national industries Stringent health and safety standards (such as India completely banning Chinese toys from the market) Complex customs clearing procedures – for example Indonesia (mentioned in the extract below) has limited the import route for over 500 different goods to six ports and the international airports, including electronics, toys, food, shoes and clothing. Argentina imposed licensing requirements on auto parts, textiles, TVs, toys, shoes, and leather goods. Calls to favour domestic products and companies in national economic stimulus packages Restrictions on international capital flows or immigration Credit/loan guarantees and investment tax allowances to favoured domestic businesses Preferential treatment to domestic firms via financial aid such as subsidies and bail-outs Using monetary policy / deliberate currency intervention to engineer a devaluation of an exchange rate to give domestic producers a competitive boost
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