US protectionism affects developing nations

Editorial, Normal

Last month’s complaint against Chinese clean-energy subsidies, and recent actions against outsourcing, are signs of growing US protectionism affecting developing countries, writes MARTIN KHOR.


WITH the US economy in bad shape, and a congressional election approaching, various actors in the country 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 China of illegally subsidising exports of clean energy equipment.
It wants the US government to take action against China at the World Trade Organisation (WTO).
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 China, are under tremendous pressure to reduce their greenhouse gas emissions.
The most important measure advocated is to switch from carbon-intensive coal and oil to renewable clean energy like solar and wind.
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.
Yet, when China takes measures to promote the production of solar panels and wind turbines, it is asked to stop these measures on the ground that they violate WTO rules.
The United Steelworkers union has filed a 5,000-page legal case with the US administration accusing China of subsidising exports of wind turbines, solar panels, nuclear power plants and other clean energy equipment.
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 US.
The US administration has to decide within 45 days whether to pursue a case against China in the WTO to remove the subsidies.
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, be-cause of lack of resources, cannot match the research and development 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) to encourage 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.


*Martin Khor writes a weekly column on global trends in The Star newspaper in Malaysia. He previously headed a consumerist non-governmental organisation.